M 


ESSAYS 


ON 


INTEREST,  EXCHANGE,   COINS, 


PAPER   MONET, 


AND 


BANKS. 


BY  JOHN   EAMSAY  McCULLOCH,  ESQ., 

AUTHOR  OF  "THE    COMMERCIAL  DICTIONARY,"  ETC. 


I.   ON   INTEREST   AND    THE    EFFECT    OF    THE    USURY   LAWS  ', 
II.    ON   FOREIGN   AND    DOMESTIC    EXCHANGE  J 

III.    ON   MONEY,    COINS,    BULLION,    SEIGNORAGE,    STANDARD,    ETC.  J 
IT.   ON   PAPER  MONEY,   AND    ON   BANKS  J 

WITH   COPIOUS   TABLES    OF    COINS   AND    MONEYS    OF   ACCOUNT. 


PHILADELPHIA: 
A.   HART,    LATE    CAREY    AND    HART, 

NO.  126,  CHESNUT  BTBEET. 

1851. 


•  >  * 


Entered  according  to  Act  of  Congress,  in  the  year  1851, 

BY  J.  SMITH  HOMANS, 
In  the  Clerk's  Offica  of  the  District  Court  of  the  District  of  Massachusetts. 


ESSAY  ON   INTEREST, 

BY  J.  R.  MCCULLOCH. 

(Published  in  the  Bankers'  Magazine  for  1850.) 


CONTENTS. 


PASS 

SKETCH  of  the  rates  of  interest  adopted  by  various  nations.         .       1 
The  rate  of  interest  varies  according  to  the  security  for  the  re- 
payment of  the  principal  and  the  duration  of  the  loan.    .        .      3 
On  the  interference  of  government  in  adjusting  the  rate  of  in- 
terest.     .....        .'        .....      5 

Effect  of  the  usury  laws  in  Rome .8 

History  of  the  laws  regulating  the  rate  of  interest  in  England, 

Scotland,  and  Ireland.      .         .         .     ,..^.       .         .         .         .9 
Comparison  between  the  market  rate  and  the  statutory  rate  of 

interest  from  1714  to  1793 11 

Pernicious  effects  of  laws  to  regulate  interest.      .         .        .         .15 
The  usury  laws  do  not  protect  the  prodigal  and  unwary.    .  16 

There  were  no  usury  laws  in  Holland.        .         .         .'•  '     .         .17 
On  the  legal  rate  of  interest  in  France,  Hamburg,  Russia,  Aus- 
tria, Leghorn,  Spain,  and  the  United  States.    .         .         .  _ '     .     18 
Usury  laws  do  not  reach  the  government.  .         .     "V.      .     19 

Error  of  some  writers  on  the  subject  of  a  low  rate  of  interest.  .     20 


2003511 


(The.  Bankers'  Magazine  contains  the  following  elaborate  Essay  on  Exchange, 
by  J.  R.  McCulloch,  Esq.) 


ESSAY  ON  EXCHANGE. 

BY  J.  R.  McCULLOCH. 


CONTENTS. 


CHAPTER  I. —  Ox  INLAND  EXCHANGE. 

Circumstances  which  determine  the  price  of  Inland  Bills. 
Natural  limit  to  fluctuations  in  the  exchange. 
Fictitious  bills  of  exchange. 

CHAPTER  H.  —  FOREIGN  EXCHANGE. 

Circumstances  which  regulate  the  value  of  bullion  in  different  coun- 
tries. 

Manner  of  estimating  the  quantity  of  bullion  in  different  coins. 

Effect  of  variations  in  the  value  of  metallic  currency  on  the  exchange. 

Effect  of  variations  in  the  relative  value  of  gold  and  silver. 

Effect  of  variations  in  the  value  of  paper  currency  on  the  exchange. 

Effect  of  fluctuations  in  the  nominal  exchange  on  export  and  im- 
port trade. 

Effect  of  fluctuations  in  nominal  exchange  on  the  trade  in  bullion. 

CHAPTER   HI.  — REAL  EXCHANGE. 

Limit  to  fluctuations  in  the  real  exchange. 

Circumstances  which  give  rise  to  a  favorable  or  unfavorable  balance 
of  payments. 

The  fact  that  the  value  of  imports  exceeds  that  of  the  exports  does 
not  warrant  the  conclusion  that  the  balance  is  unfavorable. 

In  countries  carrying  on  an  advantageous  commence,  the  value  of 
imports  must  always  exceed  the  value  of  the  exports. 

Erroneous  notions  relative  to  the  balance  of  trade. 

Favorable  or  unfavorable  balance  not  always  paid  in  bullion. 

Effect  of  fluctuations  in  the  real  exchange  on  foreign  trade. 

Operations  of  the  bill-merchants  lessen  fluctuations. 

A  large  foreign  expenditure  has  no  permanent  effect  on  exchange. 

Cause  of  the  rise  of  exchange  in  1815  and  1816. 


CONTENTS. 

CHAPTER  IV.  —  UNFAVORABLE  REAL  EXCHANGE. 

Refutation  of  the  opinion,  that,  during  an  unfavorable  real  exchange, 
commodities  of  great  value  and  small  bulk  are  exported  in  preference 
to  others. 

Computed  exchange  represents  either  the  sum  or  the  difference  of 
the  real  and  nominal  exchange. 

State  of  the  exchange  between  Great  Britain  and  the  Continent  from 
1809  to  1815. 

Causes  of  the  exportation  of  bullion  in  1809,  1810,  &c. 

The  unfavorable  exchange  during  the  latter  years  of  the  war  no  cause 
of  the  extraordinary  exportation  of  British  produce  to  the  Continent. 

CHAPTER  V.  —  NEGOTIATION  OF  BILLS  OF  EXCHANGE. 

Arbitration  of  exchange. 

Usance  days  of  grace,  Amsterdam,  Rotterdam,  Antwerp,  Hamburg, 
Altona,  Dantzic,  Paris,  Bordeaux,  Bremen,  Barcelona,  Geneva,  Madrid, 
Cadiz,  Bilboa,  Gibraltar,  Leghorn,  Leipsic,  Genoa,  Venice,  Vienna, 
Malta,  Naples,  Palermo,  Lisbon,  Oporto,  Rio  Janeiro,  Dublin. 

CHAPTER  VI.  —  HISTORY  AND  ADVANTAGES  OF  BILLS  OF  EXCHANGE. 

The  origin,  progress,  commercial  effect,  political  effects,  and  general 
importance  of  bills  of  exchange. 

CHAPTER  VII. — LAWS  AND  CUSTOMS  RESPECTING  BILLS  OF  EXCHANGE. 

Requisites  of  a  bill  or  note. 

General  explanatory  rules  and  usages.  Business  hours.  Rules  of 
giving  notices.  Effect  of  inevitable  accident.  How  to  act  when  a  bill 
is  lost.  Effect  of  usury.  Effect  of  gaming.  Effect  of  forgery.  Effect 
of  vitiation.  Acceptance  by  procuration.  Conditional  acceptance.  In- 
dorsements. 

Duties  of  drawee.  Duties  of  payee  or  holder.  Effect  of  bankruptcy. 
Accommodation  paper.  Cross  paper. 

CHAPTER  VIII.  — MONEYS  OF  ACCOUNT. 

Table  containing  the  value  of  the  moneys  of  account  of  different  places, 
expressed  in  pence  and  decimals  of  pence,  according  to  the  mint  price 
both  of  gold  and  silver  in  England  ;  that  is,  £  3  17s.  10%d.  per  ounce 
for  gold,  and  5s.  2d.  per  ounce  for  silver. 

Par  of  exchange  between  England  and  the  following  places,  viz. 
Amsterdam,  Hamburg,  Paris,  Madrid,  Lisbon,  Leghorn,  Genoa,  Naples, 
and  Venice  ;  the  same  being  computed  from  the  intrinsic  value  of  their 
principal  coins,  by  comparing  gold  with  gold,  and  silver  with  silver,  ac- 
cording to  their  mint  regulations,  and  to  assays  made  at  the  London  and 
Paris  mints.  (Presented  by  Dr.  Kelly  to  the  committee  of  the  House  of 
Lords  on  the  expediency  of  the  Bank's  resuming  cash  payments.) 

***  The  whole  of  this  Essay  is  contained  in  "  The  Bankers'  Magazine  tor  1850  :? 
Published  monthly  at  five  dollars  per  annum. 

J.  Smith  Homans.  Ill  Washington  Street,  Boston. 


ESSAY  ON   MONEY. 

BY  J.  R.  McCULLOCH,  ESQ. 

AUTHOR  OF  "THE  DICTIONARY  OF  COMMERCE,"  "PRINCIPLES  OP  POLITICAL  ECONOMY,"  &c. 

(The  whole  of  this  Essay  vnll  be  contained  in  the  Bankers1  Magazine  for  1850. 
Published  monthly,  five  dollars  per  annum.) 


CONTENTS. 


CHAPTER  I. —  ORIGIN  OF  MONET. 

Circumstances  which  led  to  the  use  of  money.  Principal  properties 
that  every  commodity  used  as  such  ought  to  possess. 

Not  a  sign  or  a  measure  of  value,  but  a  real  equivalent. 

On  the  commodities  used  as  money  in  different  countries. 

On  the  defects  of  these  commodities. 

Gold  and  silver  the  fittest  materials  for  money,  and  first  used  in  the 
shape  of  bars  and  ingots. 

On  the  coinage  of  gold  and  silver. 

Advantages  of  coined  money.  —  Coined  money  not  a  sign,  or  a  meas- 
ure, of  value. 

Use  of  gold  and  silver  as  a  standard  for  estimating  the  relative  value 
of  commodities.  Proof  of  the  non-existence  of  an  abstract  or  ideal 
standard. 

CHAPTER  n.  —  THE  EXCHANGEABLE  VALUE  OF  MONEY. 

The  cost  of  production  regulates  the  value  of  money,  when  the  power 
of  supply  is  not  monopolized. 

The  proportion  between  the 'supply  and  demand  regulates  the  value  of 
money,  when  the  power  of  supply  is  monopolized. 


CONTENTS. 


CHAPTER  HI.  —  SEIGNOEAGE. 

A  moderate  seignorage  on  coined  money  shown  to  be  advantageous. 
Principles  which  should  regulate  its  amount. 

Reasons  why  a  seignorage  should  be  imposed  on  coined  money. 

If  the  supply  of  coins  could  be  sufficiently  limited,  a  high  seignorage 
might  be  exacted. 

Difficulty  of  limiting  sufficiently  the  supply  of  coins,  and  necessity  of 
imposing  only  a  moderate  seignorage. 

On  the  amount  of  the  gold  coinage  since  the  accession  of  James  II. 
Expense  of  the  coinage  of  gold  and  silver. 

History  of  the  seignorage  in  England. 

Remedy  or  shere.     Seignorage  hi  France. 

CHAPTER  IV.  —  CURRENCY  OF  THE  PRECIOUS  METALS. 

Estimate  of  the  expense  of  a  currency  consisting  of  the  precious 
metals. 

CHAPTER  V.  — PAPER  MONEY. 

Origin  of  paper  money,  and  principle  on  which  banking  is  carried  on. 

The  principle  on  which  the  value  of  paper  money  is  maintained. 

Limitation  of  supply  sufficient  to  sustain  the  value  of  bank  paper. 

Difficulty  of  limiting  the  supply  of  bank  paper,  otherwise  than  by  ren- 
dering it  exchangeable  for  gold  or  silver.  Proposition  maintained  by 
those  who  deny  that  bank  paper  can  be  depreciated. 

The  demand  for  discounts  depends  on  a  comparison  between  the  rate 
of  interest  and  the  rate  of  profit. 

Necessity  of  making  bank-notes  payable  in  gold  or  silver.  Scheme 
for  paying  notes  in  gold  bars. 

CHAPTER  VI.  —  STANDARD  OF  THE  CURRENCY. 

Whether  gold  or  silver  should  be  adopted  as  the  standard  of  the  cur- 
rency, or  whether  it  should  consist  of  both.  Impossibility  of  arbitrarily 
fixing  the  relative  value  of  gold  and  silver. 

Over-valuation  of  gold  at  the  mint  the  cause  of  its  being  used  in  all 
considerable  payments  in  Great  Britain. 

The  contrary  effect  produced  by  the  over-valuation  of  silver  in  the 
French  mint. 

Silver  preferable  to  gold  as  a  standard.  A  gold  and  silver  currency 
equally  valuable. 


CONTENTS. 


CHAPTER  VII.  —  STANDARD  OF  MONEY. 

On  the  standard  of  money.  Purity  of  English  coins.  Weight  of 
English  coins. 

Variations  of  the  standard.  General  remarks.  Manner  of  changing 
the  standard. 

Roman  money.  Weight  of  the  as.  Proportion  of  silver  to  copper. 
Value  of  the  denarius.  Value  of  the  aureus.  The  sestertius.  Errors 
of  Dr.  Arbuthnot  and  others. 

French  money.  History  of  the  money  of  France.  Table  of  the  pro- 
gressive degradation  of  the  livre. 

English  money.  Degradation  of  the  pound  sterling.  Of  the  money 
of  Scotland.  Ireland. 

Money  of  Germany,  Spain,  Russia.     Raising  of  the  value  of  coin. 

Increase  of  the  value  of  the  English  coins  in  the  reign  of  Edward  VI. 

Pernicious  effects  of  a  reduction  of  the  standard. 

From  1601  to  1797  no  change  made  in  the  standard. 

Effects  of  the  restriction  of  cash  payments  in  1797  in  degrading  the 
value  of  bank  paper.  Extraordinary  Resolution  of  the  House  of  Com- 
mons. 

Bankruptcy  of  the  country  banks  in  1814,  1815,  1816.  Cause  of  the 
rise  in  the  value  of  bank  paper.  The  act  of  59  George  III.  (1819) 
did  not  raise  the  value  of  the  currency. 

The  standard  as  now  fixed  ought  to  be  maintained  inviolate. 

TABLES  RELATIVE  TO   THE  MONEY   OF   GREAT  BRITAIN   AND  OTHER 

COUNTRIES. 

1.  ENGLISH  MONEY.     Account  of  the  English  silver  and  gold  coins, 
showing  their  value,  the  seignorage  or  profit  upon  the  coinage,  and  the 
price  paid  to  the  public  by  the  mint,  for  the  pound  troy  of  standard  gold 
and  silver,  from  the  Conquest  to  the  year  1816. 

2.  ENGLISH  MONEY.     Amount  of  the  quantity  of  fine  silver  coined 
into  20s.,  or  the  pound  sterling  ;  the  quantity  of  standard  silver,  of  lloz. 
2dwts.  fine,  and  ISdwts.  alloy,  contained  in  20s.,  or  the  pound  sterling, 
and  the  quantity  of  standard  silver  which  was  delivered  to  the  mint,  by 
the  public,  for  20s.  of  silver  money,  in  the  different  reigns,  from  the 
time  of  Edward  I.  to  the  reign  of  George  III.     A  similar  account  with 
respect  to  gold.     And  an  account  of  the  proportionate  value  of  fine  gold 
to  fine  silver,  according  to  the  number  of  grains  contained  in  the  coins ; 
and  the  proportionate  value  of  fine  gold  to  fine  silver,  according  to  the 


CONTENTS. 

price  paid  by  the  mint  to  the  public.    Calculated  in  grains  and  1,000 
parts  troy  weight. 

3.  SCOTS  MONEY.    Account  of  the  number  of  pounds,  shillings,  and 
pennies,  Scots,  which  have  been  coined  out  of  one  pound  weight  of  silver 
at  different  times,  with  the  degree  of  purity  of  such  silver,  or  its  fine- 
ness, from  the  year  1107  to  the  year  1601. 

4.  SCOTS  MONEY.    Account  of  the  number  of  pounds,  shillings,  and 
pennies,  Scots,  which  have  been  coined  out  of  one  pound  weight  of  gold, 
with  the  degree  of  their  purity,  and  the  proportion  that  the  gold  bore  to 
the  silver. 

5.  ENGLISH  PAPER  MONEY.     Account  of  the  average  market  price  of 
bullion  in  every  year,  from  1800  to  1821.   Of  the  average  value  per  cent, 
ef  the  paper  currency,  estimated  from  the  market  price  of  gold  for  the 
same  period,  and  of  the  average  depreciation  of  the  paper  currency. 

6.  GOLD  COINS  OF  DIFFERENT  COUNTRIES.     A  table  containing  the 
assays,  weights,  and  values  of  the  principal  gold  coins  of  all  countries, 
computed  according  to  the  mint  price  of  gold  hi  England,  and  from 
assays  made  both  at  London  and  Paris,  which  have  been  found  to  verify 
each  other. 

7.  SILVER  COINS  OF  DIFFERENT  COUNTRIES.     A  table  containing  the 
assays,  weights,  and  values  of  the  principal  silver  corns  of  all  countries, 
computed  at  the  rate  of  5*.  2d.  per  ounce  standard,  from  assays  made 
both  at  the  London  and  Paris  mints. 

8.  Account  of  the  relative  value  of  gold  and  silver  in  the  principal 
trading  places  of  the  world,  computed  from  the  proportional  quantity  of 
pure  metal  in  their  principal  coins,  and  the  legal  or  current  price  of  those 
coins  respectively.    Given  in  by  Dr.  Kelly  to  the  committee  of  the 
House  of  Lords,  appointed  in  1819,  to  inquire  into  the  expediency  of  the 
Bank's  resuming  cash  payments. 


***  The  whole  of  this  Essay  will  be  republished  in  "  The  Bankers'  Magazine  for 
1 850,"  from  "  The  Encyclopaedia  Britannica,"  seyenth  edition. 

The  Bankers'  Magazine  also  contains  Mr.  McCnlloch's  able  Essays  on  "Exchange" 
and  "  Interest."    Published  monthly,  at  five  dollars  per  annum. 

J.  Smith  Homans,  111  Washington  Street,  Boston. 


ESSAY  ON  PAPER  MONEY  AND  BANKS. 


CONTENTS. 


CHAPTER  L  — UTILITY  OF  PAPER  MONEY. 

Definition  of  paper  money. 

Distinction  between  paper  money,  or  bank-notes,  and  bills  of  ex- 
change. 

Regulations  with  respect  to  the  issue  of  notes. 

Regulations  as  to  the  issue  of  notes  defective. 

The  confining  of  the  issue  of  notes  to  joint-stock  associations  would 
not  give  them  additional  security  or  value. 

The  issue  of  notes  affords  great  temptation  to,  and  facilities  for,  the 
commission  of  fraud. 

Paper  money  substantially  legal  tender. 

Security  ought  to  be  taken  from  the  issuers  of  notes. 

CHAPTER  II.  — SECURITY  FOR  BANK  ISSUES. 

The  exacting  of  security  from  the  issuers  of  paper  would  not  obviate 
fluctuations  in  its  amount  and  values,  and  would  not,  therefore,  place  the 
currency  on  a  proper  footing. 

All  local  issues  of  paper  money  should  be  suppressed. 

Issues  of  country  bankers  not  dependent  upon  the  exchange. 

Efforts  of  the  Bank  of  England  to  stop  the  efflux  of  bullion,  in  1836, 
counteracted  by  the  country  banks. 

Destruction  of  country  banks  and  paper  in  1792  -  93. 

Destruction  of  country  banks  and  paper  in  1814,  1815,  and  1816. 

Destruction  of  country  banks  and  paper  in  1825-26. 

Measures  for  establishing  joint-stock  banks  in  1826.  Inadequacy  of 
these  measures. 

Progress  of  the  joint-stock  system. 

Over-issue  by  the  joint-stock  banks  in  1836. 

Reasons  why  there  should  be  only  one  issuer  of  paper  money. 

Principle  on  which  the  Bank  of  England  endeavors  to  govern  her 
issues.  Counteracting  agencies  to  which  she  must  attend. 

Mode  in  which  a  single  issuer  of  paper  should  act,  so  as  to  make  the 
amount  and  value  of  the  currency  vary  exactly  as  if  it  were  metallic. 

CHAPTER   III.  — CLASSES  OF  BANKS. 

Introduction  and  growth  of  private  banking.     The  clearing-house. 
Regulations  to  which  the  banks  for  deposit  only  should  be  subjected. 


CONTENTS. 


CHAPTER  IV.  — BANK  OF  ENGLAND. 

Renewals  of  Bank  charter,  with  the  conditions. 

Runs  upon  the  Bank,  1745,  1780,  and  1797. 

Suspension  of  cash  payments  in  1797. 

Resumption  of  cash  payments  in  1821. 

Bank-notes  made  legal  tender  everywhere  except  at  the  Bank. 

Principle  on  which  the  Bank  endeavors  to  regulate  her  conduct. 

Bank  of  England  in  connection  with  the  Government. 

Assistance  rendered  by  the  Bank  to  the  mercantile  interests. 

CHAPTER  V.  —  JOINT-STOCK  BANKS  OF  GREAT  BRITAIN. 

Statements  by  the  Committee  of  1836. 
Remedial  measures  that  should  be  adopted. 

CHAPTER  VI. —THE  SCOTCH  BANKS. 

Establishment  of  the  Royal  Bank  in  1727,  and  an  account  of  the 
subsequent  banks  of  that  country. 

Reasons  for  the  few  failures  among  Scotch  banks. 

Suppression  of  local  notes  in  Scotland  unnecessary. 

Remarks  on  the  Scotch  system  of  deposits. 

Remarks  on  the  cash  accounts,  or  cash  credit  system  adopted  in  Scot- 
land. 

Tabular  view  of  the  banks  in  Scotland,  —  showing  the  number  of 
partners ;  number  of  branches  ;  paid-up  capital ;  dividends ;  par  value 
of  shares ;  and  market  value  of  shares  of  each. 

CHAPTER  VII.  —  THE  IRISH  BANKS. 

Retrospective  view  of  banking  in  Ireland  ;  with  remarks  on  the  fail- 
ures of  their  banks. 

Tabular  view  of  the  Irish  banks  ;  showing  the  circulation  of  the 
Bank  of  Ireland  for  each  year  from  1823  to  1836. 

CHAPTER  VIII.  —  FOREIGN  BANKS. 

1.  The  Bank  of  Venice,  —  its  early  establishment  as  a  deposit  bank, 

—  ruined  by  the  French  invasion. 

2.  The  Bank  of  Amsterdam,  —  founded   in   1609,  —  suspension  in 
1790,  —  advances  to  the  government. 

3.  The  Bank  of  Hamburg,  —  establishment  in  1619. 

4.  The  Bank  of  France,  —  founded  in  1803,  —  terms  of  the  charter, 

—  administration  of  the  bank,  —  circulation,  — &,c. 

CHAPTER  IX.  —  BANKING  IN  THE  UNITED  STATES. 

1.  Remarks  on  the  banking  system  of  the  United  States, —  erroneous 
views  in  its  adoption,  —  excessive  issue  of  paper  money.  \ 

2.  Tabular  view  of  the  banks  in  the  United  States  in  the  years  1811- 
1820,  and  1830-1836,  —  number  of  banks  in  each  State,  —  number 
of  banks  and  branches,  and  capital. 


NOTE.  —  THE  FOLLOWING  ESSAYS  ARE  REPUBLISHED  FEOM  THE  SEVENTH  EDI- 
TION OF  "  THE  ENCYCLOPEDIA  BBITANNICA,"  EDITED  BY  THE  LATE  PEOFESSOB 
NAPIEB,  OF  EDINBURGH.  IN  THE  PRESENT  EDITION  THESE  WRITINGS  HAVE  BEEN 
DIVIDED  INTO  CHAPTERS,  FOR  MORE  CONVENIENT  REFERENCE,  AND  ARE  ALSO 
FURNISHED  WITH  A  SEPARATE  INDEX  TO  EACH  ESSAY. 

BOSTON,  July,  185« . 


McCciioCH's  ESSAYS.  — Mr.  McCulloch  has  condensed  a  great  mass  of  knowledge,  which  men  of  all 
parties  should  be  glad  to  see  so  put  together,  in  his  POLITICAL  ECONOMY,  EXCHANGE,  INTEREST,  TAXA- 
TION, PAPER  MONEY,  and  PRINCIPLES  OF  BANKING.  —  Edinburgh  Review. 

McCuLLOCH  ON  TAXATION. — This  work  embraces  one  of  the  most  extensive,  and  preeminently  the 
most  practical  department  of  the  all-important  science  to  which  it  belongs ;  and  it  comes  to  us  recom- 
mended by  the  authorship  of  one  of  the  most  distinguished  cultivators  of  that  SCIENOB. 

It  is  a  work  with  which  not  only  every  statesman  and  legislator,  but  every  reflecting  member  of  the 
community,  ought  to  make  himself  acquainted ;  and  we  can  have  no  hesitation,  therefore,  in  saying 
that  Mr.  McCulloch  has,  by  the  thought  and  labor  he  has  devoted  to  its  composition,  added  another 
strong  claim  to  those  he  had  before  established  upon  the  gratitude  of  his  countrymen.  —  Edin- 
burgh Review. 


ESSAY  ON  INTEREST. 


BY  J.  R.  McCULLOCH,  ESQ. 


INTEREST  is  the  sum  which  the  borrower  of  a  capital  obliges  himself  to 
pay  to  the  lender  for  its  use.  Interet :  loyer  d'un  capital  prete  ;  ou  bien, 
en  termes  plus  exacts,  achat  des  services  productifs  que  peut  rendre  un 
capital. 

Formerly  it  was  universally  believed  that,  in  the  event  of  all  legislative 
enactments  fixing  and  regulating  the  rate  of  interest  being  repealed,  its  in- 
crease or  diminution  would  depend  wholly  on  the  comparative  scarcity  or 
abundance  of  money  ;  or,  in  other  words,  that  it  would  rise  as  money  be- 
came scarce,  and  fall  as  it  became  more  plentiful.  Mr.  Hume  was  the  first 
to  point  out  the  fallacy  of  this  opinion  (see  his  Essay  on  Interest},  and  to 
show  that  the  rate  of  interest  is  not  determined  by  the  amount  of  the  cur- 
rency, but  by  the  average  rate  of  profit  derived  from  the  employment  of  capi- 
tal. No  doubt  it  most  frequently  happens  that,  when  a  loan  is  made,  it  is 
made  in  the  currency  of  the  country.  This,  however,  is  really  of  no  con- 
sequence. There  is  obviously  no  difference  between  one  individual  fur- 
nishing another  with  100  bushels  of  corn,  to  be  repaid  at  the  expiration  of 
a  twelve-month  by  the  delivery  of  104  or  105  bushels,  or  with  as  much 
money  at  four  or  five  per  cent,  as  would  have  purchased  the  corn.  Be- 
sides, it  is  easy  to  perceive  that  the  same  identical  sum  of  money  might 
serve  to  negotiate  an  infinity  of  loans.  Suppose  A  lends  to  X  £1000,  which 
X  immediately  pays  away  to  B  for  commodities  of  equal  value  ;  but  B  has 
no  use  for  the  money,  and  he  therefore  lends  it  to  Y,  who  pays  it  away  for 
commodities  to  C,  who  again  lends  it  to  Z,  and  so  on  ;  it  is  plain,  the 
borrowers,  X,  Y,  Z,  have  really  received  a  loan  of  commodities,  or  capital, 
from  the  lenders,  A,  B,  C,  worth  three  times  (and  it  might  have  been  worth 
three  hundred  or  three  thousand  times)  as  much  as  the  money  employed  in 
settling  the  transactions.  According  as  the  supply  of  currency,  compared 
with  the  business  it  has  to  perform,  is  greater  or  less,  we  are  obliged  to  give 
a  greater  or  less  number  of  guineas  or  livres,  pound  notes,  or  assignats,  for 
the  commodities  we  wish  to  obtain.  It  is  plainly,  however,  by  the  ad- 
vantage or  profit  we  expect  to  derive  from  the  acquisition  of  the  commod- 


2  Interest.  , 

ities  which  constitute  capital,  and  not  from  the  accidental,  and,  in  this 
respect,  unimportant  circumstance  of  a  larger  or  smaller  number  of  pieces 
of  gold  or  silver,  or  of  bits  of  engraved  paper,  being  given  for  them,  that 
the  rate  of  interest,  or  the  compensation  given  to  the  lender  for  the  use  of 
his  stock,  must  be  determined.  It  may,  perhaps,  be  supposed,  that  when 
the  quantity  of  metallic  money  is  increased,  goldsmiths,  jewellers,  etc.,  ob- 
tain the  raw  material  for  carrying  on  their  business  with  greater  facility  ; 
but  this  is  not  always  the  case,  and,  though  it  were,  it  would  not  affect  the 
rate  of  interest.  No  coins  are  ever  sent  to  the  melting-pot  unless  when  the 
currency  is  either  degraded  or  depreciated  ;  that  is,  unless  it  be  deficient 
in  weight  or  relatively  redundant  in  quantity.  And  it  is  clear  that  the  in- 
ducement to  promise  a  high  or  low  rate  of  interest  for  loans  of  metallic 
money,  which  it  was  intended  to  work  up  into  some  species  of  manufactured 
goods,  would  depend,  not  on  the  supply  of  such  money,  but  on  the  profit  to 
be  derived  from  the  operation,  a  circumstance  totally  unconnected  with  the 
scarcity  or  abundance  of  coin. 

It  appears,  therefore,  that  the  rate  of  interest  at  any  given  period  de- 
pends exclusively  on  the  supply  of  real  disposable  capital,  such  as  land, 
machinery,  raw  and  manufactured  products,  etc.,  compared  with  the  power 
of  profitably  employing  it.  An  increase  of  metallic  money  adds  only  very 
inconsiderably,  and  an  increase  of  paper  money  adds  nothing  whatever,  to 
the  real  capital  of  the  country,  or  to  the  material  of  which  all  loans  are 
really  composed.  If  an  increase  of  paper  money  was  equivalent  to  an  in* 
crease  of  capital,  bank  notes  could  not  be  too  much  multiplied,  and  France 
would  have  been  about  twenty  times  as  rich  at  the  era  of  the  assignats  as 
at  this  moment.  It  is  not  denied  that  considerable  mischief  and  derange- 
ment must  always  be  experienced  in  a  highly  manufacturing  and  commer- 
cial country  like  Great  Britain,  when  any  sudden  check  is  given  to  the 
facility  with  which  discounts  are  generally  obtained,  or  when  the  currency 
is  suddenly  contracted.  But  the  frottement  and  inconvenience  occasioned 
by  a  contraction  of  the  currency  could  only  be  temporary.  It  is  impossible 
it  could  have  any  lasting  effect  on  the  industry  of  the  country.  We  should 
still  possess  the  same  amount  of  real  capital ;  and  as  neither  its  productive 
power,  nor  the  liberty,  to  transfer  it  from  one  individual  to  another,  would 
be  at  all  impaired,  the  real  revenue  of  the  state  would  continue  as  great  as 
ever,  and  the  same  or  a  greater  amount  of  stock  might  be  disposed  of  by 
way  of  loan.  Money  prices  would  certainly  fall  proportionally  to  the  reduction 
of  the  currency ;  or,  which  is  the  same  thing,  the  value  of  commodities 
would  henceforth  have  to  be  ascertained  by  comparing  them  with  a  smaller 
number  of  bits  of  gold  or  paper.  But  in  every  other  respect,  the  business 
of  society  would  continue  exactly  on  its  former  footing ;  and  without  some 
change  in  the  rate  of  profit,  on  which  fluctuations  in  the  value  of  money 
have  almost  no  effect,  the  rate  of  interest  would  continue  invariable. 

Mr.  Ricardo  has  set  this  principle  in  a  clear  and  striking  point  of  view. 
"  The  rate  of  interest,"  he  observes,  in  answer  to  those  who  had  contended 
that  it  would  be  increased  by  a  diminution  of  the  discounts  of  the  Bank  of 
England,  "  is  not  regulated  by  the  rate  at  which  the  Bank  will  lend,  whether 
it  be  five,  four,  or  three  per  cent.,  but  by  the  rate  of  profit  which  can  be 
made  by  the  employment  of  capital,  and  which  is  totally  independent  of  the 
quantity  and  of  the  value  of  money.  "Whether  a  bank  lend  one  million,  ten 


Rate  of  Interest.  3- 

millions,  or  a  hundred  millions,  they  would  not  permanently  alter  the  mar- 
ket rate  of  interest ;  they  would  alter  only  the  value  of  the  money  which 
they  thus  issued.  In  one  case,  ten  or  twenty  times  more  money  might  be 
required  to  carry  on  the  same  business,  than  what  might  be  required  on 
the  other.  The  applications  to  the  bank  for  money,  then,  depend  on  the 
comparison  between  the  rate  of  profits  that  may  be  made  by  the  employment 
of  it,  and  the  rate  at  which  they  are  willing  to  lend  it.  If  they  charge  less 
than  the  market  rate  of  interest,  there  is  no  amount  of  money  which  they 
might  not  lend :  if  they  charge  more  than  that  rate,  none  but  spendthrifts 
and  prodigals  would  be  found  to  borrow  of  them.  We  accordingly  find, 
that  when  the  market  rate  of  interest  exceeds  the  rate  of  five  per  cent.,  at 
which  the  bank  uniformly  lend,  the  discount  office  is  besieged  with  appli- 
cants for  money  ;  and,  on  the  contrary,  when  the  market  rate  is  even  tem- 
porarily under  five  per  cent.,  the  clerks  of  that  office  have  no  employment." 
Kicardo's  Principles  of  Political  Economy,  1st  edit.  p.  511. 

It  is  foreign  to  the  object  of  this  article  to  enter  into  any  detailed  exam- 
ination of  the  causes  which  tend  to  elevate  or  depress  the  rate  of  profit 
Whatever  diversity  of  opinion  may  be  entertained  respecting  them,  it  is 
abundantly  evident  that  the  rate  of  interest  afforded  for  the  use  of  borrowed 
capital  must  be  proportional  to  the  profits  which  might  be  derived  from  its 
employment.  In  the  United  States,  the  market  rate  of  interest  varies  from 
ten  to  fourteen  per  cent.;  and  in  Holland,  previously  to  the  invasion  of  the 
French,  in  1794,  it  did  not  exceed  two  or  three  per  cent.  The  immense 
extent  of  fertile  and  uncultivated  land  in  America,  the  lowness  of  taxation, 
and  the  absence  of  all  restrictive  regulations,  naturally  occasion  high  profits, 
and  consequently  high  interest ;  whilst  the  sterility  and  limited  extent  of 
the  soil  of  Holland,  the  excessive  load  of  taxes,  laid  equally  on  necessaries 
and  luxuries,  and  the  injudicious  restraints  imposed  upon  various  branches 
of  commerce,  by  rendering  it  impossible  to  derive  large  returns  from  capital, 
proportionally  sink  the  rate  of  interest.  Had  the  soil  of  Holland  been  as 
fertile,  and  taxation  as  light  as  in  the  United  States,  profits  and  interest 
would,  notwithstanding  the  abundant  supply  of  capital,  have  been  equally 
high  in  the  one  republic  as  in  the  other.  It  is  not  by  the  absolute  amount 
of  the  stock  of  a  country,  but  by  the  comparative  facilities  for  its  advan- 
tageous employment,  that  the  compensation  or  interest  which  a  borrower 
can  afford  for  its  use,  must  always  be  regulated.  Previously  to  the  ter- 
mination of  the  late  war,  the  market  rate  of  interest  in  this  country,  for 
sums  which  could  not  be  immediately  demanded,  fluctuated  from  five  to 
twelve  per  cent.  It  has  since  fallen  to  four  or  five  per  cent.;  a  decline 
which  has  not  certainly  been  occasioned  by  any  sudden  increase  of  capital, 
but  by  the  extraordinary  depression  of  commerce,  and  the  consequent  im- 
possibility of  investing  stock  so  as  to  yield  as  large  a  profit  as  it  did  during 
the  period  when  we  engrossed  almost  the  whole  trade  of  the  world. 

Rate  of  Interest  varies  according  to  the  Security  for  the  Repayment  of  the  Principal  and  the 
Duration  of  the  Loan. 

Besides  such  variations  as  are  proportional  to  variations  in  the  general 
and  average  rate  of  profit,  and  which  equally  affect  all  loans,  the  rate  of 
interest  must  vary  according  to  the  degree  of  security  afforded  for  the  repay- 


4  Interest. 

ment  of  the  principal,  and  the  duration  of  the  loan.  No  capitalist  would 
lend  on  the  personal  security  of  a  gunpowder  manufacturer,  and  on  mort- 
gage over  a  valuable  estate,  at  the  same  rate  of  interest.  The  extraordinary 
hazard  of  the  gunpowder  trade  exposes  the  stock  invested  in  it  to  an  ex- 
treme degree  of  risk.  It  may  be  dissipated  in  an  instant,  and  the  power  of 
the  borrower  to  refund  the  capital  he  had  borrowed  annihilated  forever. 
A  lender  of  money  on  mortgage  is  almost  entirely  relieved  from  such  con- 
tingencies. The  owner  of  an  estate  on  which  a  loan  is  secured  may  be- 
come bankrupt ;  but  the  estate  itself  will  remain,  and  may  either  be  sold  or 
taken  possession  of  by  the  lender.  It  is  plain,  therefore,  that  there  must 
be  a  very  great  difference  in  the  rate  of  interest  paid  by  those  whose  se- 
curity for  the  repayment  of  the  principal  is  so  exceedingly  different.  The 
gunpowder  manufacturer,  besides  paying  a  rate  or  percentage  equivalent  to 
the  common  and  average  rate  of  interest  derived  from  the  most  secure  in- 
vestments, would  have  to  pay  an  additional  rate,  which,  although  it  might 
not  be  designated  by  that  name,  would  really  constitute  &  premium  of  in- 
surance proportioned  to  the  greater  risk  to  which  the  lender  was  exposed 
of  losing  his  principal.  The  preferable  security  offered  by  the  landholder 
would  relieve  him  from  the  necessity  of  paying  any  considerable  premium, 
or  excess  of  interest,  on  account  of  risk  ;  and  of  course  he  would  be  able 
to  borrow  at  so  much  less  than  the  manufacturer. 

We  should  mistake,  however,  if  we  supposed  that  the  latter  was  thus 
placed  in  a  comparatively  disadvantageous  situation.  He  would  be  complete- 
ly indemnified  for  the  greater  risk  to  which  his  stock  was  exposed,  and  for 
the  higher  rate  of  interest  which  he  was  in  consequence  obliged  to  pay,  by 
the  greater  gross  profits  he  would  derive  from  his  business.  The  constantly 
operating  principle  of  competition  will  not  permit,  taking  everything  into 
account,  a  greater  net  profit  to  be  permanently  derived  from  one  department 
of  industry  than  from  another.  But  those  who  invest  their  stock  in  employ- 
ments of  more  than  ordinary  hazard,  must  be  able  to  dispose  of  their  pro- 
duce at  such  a  price  as  will  yield  them  the  common  and  average  rate  of 
profit,  besides  affording  a  surplus  adequate  to  insure  their  stock  against  the 
extra  risk  to  which  it  is  exposed.  If  this  were  not  the  case,  no  capitalist 
would  place  his  property  in  a  state  of  comparative  danger,  and  no  under- 
takings of  a  hazardous  nature  would  be  entered  into.  Wherever  there  is 
risk,  that  risk  must  be  compensated.  And  it  may,  and  very  frequently 
does  happen,  that  the  manager  of  a  hazardous  branch  of  industry,  paying 
from  ten  to  twenty  per  cent,  for  borrowed  capital,  is  realizing  a  larger  net 
profit  than  the  landlord  who  has  purchased  an  estate  with  money  for  which 
he  only  pays  three  or  four  per  cent. 

This  principle  is  never  lost  sight  of  in  bargaining  for  loans.  In  Athens, 
the  rate  of  interest  was  not  regulated  by  law  ;  and  it  is  distinctly  mentioned 
by  ancient  authors,  that  the  average  rate  of  interest  paid  by  those  who  em- 
ployed their  stock  in  the  shipping  trade  with  the  countries  situated  on  the 
Euxine  and  Mediterranean  seas  amounted,  on  account  of  the  hazard  of 
the  voyage,  to  about  thirty  per  cent.;  whilst  bankers,  agriculturists,  and 
others,  whose  security  was  preferable,  paid  only  about  twelve  per  cent.  Say, 
in  noticing  this  striking  fact,  supposes  that  the  thirty  per  cent,  was  charged 
by  the  voyage ;  and  that,  as  two  voyages  to  the  Crimea  or  Sicily  might  be 
made  annually,  maritime  interest  really  amounted  at  Athens  to  sixty  per. 


Government  Interference.  5 

cent.  There  does  not,  however,  appear  to  be  the  least  ground  for  this  as- 
sertion. It  is  the  average  annual  rate  of  interest  that  is  always  spoken  of. 
(Travels  of  Anacharsis,  vol.  iv.  p.  368,  Eng.  Transl. ;  DePauw,  Rtcherches 
sur  les  Grecs,  torn.  i.  p.  287 ;  Say,  torn.  ii.  p.  132.) 

But  supposing  the  securities  to  be  equal,  capital  lent  for  short  periods,  or 
in  such  a  way  that  the  lender  may  obtain  possession  of  it  at  pleasure,  will 
always  bring  a  lower  rate  of  interest  than  capital  lent  for  a  considerable  or 
definite  period.  No  borrower  could  afford  to  pay  so  high  a  rate  of  interest 
for  a  capital  whose  productive  services  he  might  be  deprived  of  in  an  instant, 
and  which  he  could  not  therefore  venture  to  invest  in  any  employment  from 
which  it  might  not  be  easily  withdrawn,  as  for  a  capital  lent  for  a  fixed 
period,  especially  if  that  period  was  of  considerable  length.  But  here,  as 
in  every  other  case,  the  real  interests  of  the  borrower  and  lender  coincide. 
The  same  circumstances  which  prevent  a  borrower  from  giving  as  high  a 
rate  of  interest  for  a  loan  payable  on  demand  as  if  it  were  payable  at  a 
fixed  and  distant  term,  induce  the  lender  to  rest  satisfied  with  a  smaller 
compensation  in  the  one  case  than  in  the  other.  We  wish  to  be  able  to 
exercise  a  complete  command  over  our  capital.  No  merchant  would  ever 
consent  to  lend  his  stock  on  mortgage.  If  he  did,  he  would  no  longer  be 
able  to  carry  on  his  business  with  advantage.  He  would  be  deprived  of  all 
power  of  speculating ;  and  although  this  might  in  many  instances  be  for  his 
advantage,  yet  the  flattering  opinion  which  every  one  entertains  of  his  own 
abilities  and  good  fortune  would  but  seldom  allow  him  to  doubt  of  its  being 
a  very  material  disadvantage.  It  is  by  this  principle  that  we  are  able  to 
account  for  the  comparatively  low  rate  of  interest  at  which  banking 
companies  who  pay  the  sums  deposited  with  them  on  demand,  and  govern- 
ments whose  circumstances  are  perfectly  desperate,  are  able  to  borrow.  A 
stockholder's  mortgage  (his  claim  on  the  revenue  of  the  country)  can  be 
immediately  converted  into  cash  at  the  current  prices.  And  however  much 
the  majority  of  the  public  creditors  may  be  impressed  with  a  conviction  of 
the  inability  of  the  state  to  discharge  all  the  claims  upon  it,  every  particu- 
lar individual,  confident  in  his  own  good  fortune,  foresight,  and  acuteness, 
flatters  himself  with  the  idea  that  he,  at  least,  will  be  able  to  predict  the 
coming  tempest,  and  that  he  will  be  able  to  sell  out  before  a  national  bank- 
ruptcy. 

Interference  of  Government  in  adjusting  the  Rale  of  Interest. 

Instead,  however,  of  leaving  the  rate  of  interest  to  be  adjusted  by  the 
unfettered  competition  of  the  borrowers  and  lenders,  on  the  principles  we 
have  thus  briefly  explained,  the  governments  of  most  countries  have  inter- 
fered, either  to  prohibit  the  taking  interest  altogether,  or  to  fix  certain  rates 
which  it  was  declared  legal  to  exact,  at  the  same  time  that  any  excess  over 
these  rates  was  declared  to  be  iisury,  and  prohibited  under  the  severest 
penalties.  In  the  rude  and  unenlightened  ages  in  which  these  enactments 
had  their  origin,  the  precious  metals,  then  the  only  species  of  money,  were 
considered  as  uninfluenced  by  the  same  principles  which  regulate  the  value 
of  other  products.  Being  used  both  as  standards,  whereby  to  ascertain  the 
comparative  value  of  different  commodities,  and  as  the  equivalents  for 
which  they  were  must  frequently  exchanged,  they  acquired  a  factitious  im- 


6  Interest. 

portance,  not  merely  in  the  estimation  of  the  vulgai',  but  in  that  of  persons 
of  the  greatest  discernment.  The  simple  consideration  that  all  buying 
and  selling  is  really  nothing  more  than  the  bartering  of  one  commodity  for 
another,  of  a  certain  quantity  of  corn  or  beef,  for  example,  for  a  certain 
quantity  of  gold  or  silver,  and  vice  versa,  was  entirely  overlooked.  The 
attention  was  gradually  transferred  from  the  money's  worth  to  the  money 
itself ;  and  the  wealth  of  states  and  of  individuals  came  to  be  measured, 
not  by  the  abundance  of  their  disposable  produce,  by  the  quantity  or  value 
of  the  commodities  with  which  they  could  afford  to  purchase  the  precious 
metals,  but  by  the  quantity  of  these  metals  actually  in  their  possession.  Be- 
cause it  sometimes  happened  that  the  holders  of  ordinary  commodities  were 
unable  easily  to  dispose  of  them  at  any  price,  whilst  money  was  always 
sure  to  find  a  ready  and  advantageous  market,  it  was  considered  as  some- 
thing mysterious,  as  a  real  merchandise,  par  excellence.  We  cannot,  there- 
fore, be  surprised  at  the  measures  to  which  the  erroneous  opinions  enter- 
tained respecting  it  necessarily  led ;  or  that  efforts  should  have  been 
made  to  protect  the  interests  of  those  who  were  unprovided  with  so  power- 
ful an  instrument  from  becoming  a  prey  to  the  encroachments  of  their  more 
fortunate  neighbors.  Every  individual  was  allowed  freely  to  dispose  of  his 
corn,  cattle,  land,  etc.;  but  it  was  imagined  there  was  something  peculiar  in 
money,  and  that  the  desire  to  obtain  it  was  so  great,  that,  unless  the  lenders 
were  restrained  in  their  demands,  they  would,  by  taking  advantage  of  the 
necessities  of  the  borrowers,  infallibly  ruin  them,  and  engross  the  whole 
property  of  the  country. 

Another  source  of  the  prejudice  against  stipulating  for  interest  must  be 
sought  for  in  the  dislike  so  universally  entertained  in  remote  ages  to  accu- 
mulation. There  can  be  no  accumulation  without  economy,  without  a  saving 
of  income  ;  and  this  was  then  not  only  considered  as  indicative  of  a  sordid 
and  avaricious  disposition,  but  as  being  positively  hurtful.  Before  the  nature 
and  functions  of  capital  were  properly  understood,  it  was  believed  that  it 
could  not  be  increased  otherwise  than  by  injuriously  abstracting  a  portion 
of  the  national  revenue,  and  that  any  advantage  it  might  give  to  the  propri- 
etor must  have  been  obtained  at  the  public  expense.  It  did  not  occur  to  our 
ancestors,  that  an  individual  who,  by  his  economy,  has  accumulated  stock, 
has  really  added  to  the  wealth  of  the  state,  without  diminishing  that  of 
others ;  nor  were  they  aware  that  this  stock,  when  afterwards  expended,  as 
is  almost  always  the  case,  in  the  support  of  productive  industry,  would  af- 
ford the  means  of  producing  an  increased  income.  But  reckoning,  as  they 
did,  the  savings  of  individuals  as  so  much  withdrawn  from  the  public  income, 
it  was  natural  enough  that  they  should  endeavor  to  limit  the  advantage  to 
be  derived  from  their  employment. 

Much,  also,  of  the  prejudice  against  bargaining  for  interest,  so  prevalent 
in  the  Middle  Ages,  may  be  traced  to  the  authority  of  some  texts  of  Scrip- 
ture, which  were  understood  entirely  to  prohibit  its  exaction.  It  has,  how- 
ever, been  shown  that  these  texts  will  not  really  bear  this  interpretation  ; 
but  supposing  that  they  did,  nothing,  it  is  plain,  could  be  more  absurd  than 
to  consider  the  municipal  regulations  of  a  people  placed  in  such  peculiar 
circumstances  as  the  Jews  as  general  and  fixed  principles,  applicable  in 
all  ages  and  countries. 

But,  whatever  may  have  been  the  causes  of  the  efforts  so  generally  made 


Government  Laws.  7 

to  regulate  and  limit  the  rate  of  interest,  it  is  cei'tain  that,  so  far  from  suc- 
ceeding in  their  object,  they  have  had  a  precisely  opposite  effect.  Should  a 
borrower  find  it  for  his  advantage  to  offer  six,  seven,  or  eight  per  cent,  for  a 
loan  (and,  unless  it  were  for  his  advantage,  nothing  could  possibly  induce 
him  to  make  such  an  offer),  what  right  has  the  legislator  to  interfere,  and 
to  prohibit  the  lender  from  receiving,  and  the  borrower  from  paying,  more 
than  four  or  five  per  cent.  Such  an  interference  is  not  only  uncalled  for 
and  unnecessary,  but  it  is  in  the  highest  degree  prejudicial.  Restrictive 
laws,  instead  of  reducing,  have  uniformly  contributed  to  raise  the  rate  of 
interest.  Nor  is  this  anything  more  than  might  have  been  foreseen  and  ex- 
pected. It  is  plain  that  no  law  can  be  so  framed  as  to  prevent  a  borrower 
from  offering  a  higher  rate  of  interest  than  what  is  fixed  by  statute  ;  and 
if  the  lender  had  implicit  confidence  in  the  secrecy  and  solvency  of  the 
borrower,  he  might  accommodate  him  with  the  sum  wanted,  without  requir- 
ing any  additional  interest,  or  premium  of  insurance,  because  of  the  danger 
of  entering  into  what  the  law  declares  to  be  -an  illegal  transaction. 

But  this  must  be  a  very  rare  case.  Gratitude  and  a  sense  of  benefits  re-' 
ceived  are,  unfortunately,  when  they  come  into  contact  with  self-interest,but 
slender  securities  for  honorable  conduct  Numberless  unforeseen  events 
occur  to  waken  and  dissolve  the  best-cemented  friendships ;  and  a  transac- 
tion of  this  kind  would  undoubtedly  afford  an  additional  source  of  jealousies 
and  divisions.  In  such  matters,  indeed,  men  are  more  than  usually  sharp- 
sighted,  and  are  very  little  disposed  to  trust  to  moral  guarantees  for  the 
security  of  their  property.  But  neither  the  threatenings  of  the  law,  nor 
the  powerful  inducements  which  it  holds  out  to  dishonest  debtors  to  break 
their  engagements,  and  treacherously  to  recede  from  the  stipulations  to  which 
they  had  agreed,  have  been  able  to  prevent,  or  even  greatly  to  lessen,  what 
are  termed  usurious  bargains.  Their  only  effect  has  been  to  oblige  the 
lender  to  demand,  and  the  borrower  to  bind  himself  to  pay,  a  higher  rate 
of  interest  than  would  otherwise  have  been  required.  A  bargain  for  more 
than  the  statute  rate  of  interest  being  declared  illegal,  the  lender  is  thus 
exposed  to  an  additional  risk.  But  no  person  will  gratuitously  place  his 
fortune  in  a  situation  of  comparative  hazard;  and,  therefore,  the  sum 
necessary  to  cover  this  risk  must  be  proportioned  to  the  greater  or  less  anx- 
iety on  the  part  of  government  to  prevent  and  punish  such  bargains  ;  or,  in 
other  words,  the  rate  of  interest  is  invariably  increased  according  as  the 
laws  intended  to  reduce  it  become  more  severe,  and  diminished  according 
as  they  are  relaxed. 

Thus  a  capitalist  might  be  inclined  to  lend  a  sum  at  six  or  seven  per 
cent.;  but  as  the  law  declares  that  any  individual  who  shall  stipulate  for 
more  than  five  per  cent,  shall,  if  detected,  forfeit  three  times  the  principal,  it 
is  clear,  provided  there  was  no  method  of  defeating  this  statute,  that  there 
must  be  an  end  of  all  borrowing,  except  when  the  market  rate  of  interest 
was  below  the  stationary  rate.  Whenever  it  was  above  that  rate,  no  per- 
son would  be  able  to  obtain  a  single  farthing  in  the  way  of  loan.  There 
could  then  be  no  transference  of  capital.  It  would  continue  locked  up  in 
the  same  hands ;  and  the  national  property  and  welfare  would,  in  conse- 
quence, suffer  severely.  Luckily,  however,  the  mutual  interest  and  inge- 
nuity of  borrowers  and  lenders  have  always  proved  an  overmatch  for  the 
enactments  of  the  law.  These  have  done  nothing  but  fetter  the  transfer- 


8  Interest. 

ence  of  stock,  and  force  the  borrowers  to  pay  a  higher  rate  of  interest  for  it. 
What  might  have  been  borrowed  at  six  per  cent.,  had  there  been  no  hazai'd 
from  anti-usurious  statutes,  is,  on  account  of  that  hazard,  raised  to  perhaps 
eight  or  even  ten  per  cent.;  and,  what  is  still  worse,  a  contempt  for  the  in- 
stitutions of  society  and  a  habit  of  carrying  on  business  in  a  secret  and  un- 
derhand manner,  are  generated.  The  odium  which  attaches  to  a  positively 
pernicious  regulation,  weakens  the  respect  which  would  otherwise  be  felt 
for  those  which  are  acknowledged  to  be  advantageous  ;  and  that  spirit  of 
frankness,  openness,  and  sincerity,  which,  wherever  it  predominates,  is  so 
highly  valuable,  is  cramped  in  its  development,  or  altogether  supplanted,  by 
duplicity,  extortion,  and  cunning. 

Effect  of  the  Usury  Laics  in  Rome. 

These  conclusions  do  not  rest  on  theory  only,  but  are  supported  by  a 
constant  and  uniform  experience.  At  Rome,  during  the  period  of  the  re- 
public, the  ordinary  rate  of  interest  was  excessively  high.  The  debtors  or 
plebeians,  were  every  now  and  then  threatening  to  deprive  their  creditors, 
who  were  generally  of  the  patrician  order,  not  only  of  the  interest  of  their 
capital  but  of  the  principal  itself.  Repeated  instances  occurred  to  show 
that  these  were  not  mere  empty  threats  ;  and  the  patricians  were  therefore 
obliged  to  indemnify  themselves,  by  means  of  a  corresponding  premium, 
for  the  risks  to  which  they  were  exposed.  "  Des  continuels  changements," 
says  Montesquieu,  "  soit  par  des  loix,  soit  par  des  plebiscites,  naturaliserent 
a  Rome  1'usure ;  car  les  creanciers,  voyant  le  peuple  leur  debiteur,  leur 
legislateur,  et  leur  juge,  n'eurent  plus  de  confiance  dans  les  contrats.  Le 
peuple,  comme  un  debiteur  decredite,  ne  tentoit  a  lui  preter  que  par  des 
gros  profits ;  d'autant  plus  que,  si  les  loix  ne  venoient  que  de  temps  en 
temps,  les  plaintes  du  peuple  etoient  continuelles,  et  intimidoient  toujours 
les  creanciers.  Cela  fit  que  tous  les  moyens  honnetes  de  preter  et  d'em- 
prunter  furent  abolis  a  Rome,  et  qu'une  tisure  qffreuse,  toujours,  foudroyee, 
et  toujours  renaissante,  s'y  etablit.  Le  mal  venoient  de  ce  que  les  choses 
n'avoient  pas  etc  menages.  Les  loix  extremes  dans  le  bien  font  naitre  le 
mal  extreme :  il  jallut  payer  pour  le  pret  de  I'argent,  et  pour  le  danger  des 
peines  de  la  loi."  {Esprit  des  Loix,  livre  xxii.  chap.  21.) 


Interest  in  the  East ;  in  the  Middle  Ayes ;  in  France ;  in  Livonia. 

In  Mohammedan  countries,  notwithstanding  the  positive  prohibition  in 
the  Koran,  the  ordinary  rate  of  interest  is  at  least  ten  or  twenty  times  as 
high  as  its  ordinary  rate  in  Europe.  "  L'usure  augmente  dans  les  pays 
Mohammedans  a  proportion  de  la  severite  de  la  defense :  le  preteur 
s'indemnise  du  peril  de  la  contravention."  (Esprit  des  Loix,  liv.  xxi.  ch.  19.) 

During  the  Middle  Ages,  the  average  rate  of  profit  could  not  be  much 
higher  than  at  present:  "  but  the  clamor  and  persecution  raised  against 
those  who  took  interest  for  the  use  of  money  was  so  violent,  that  they  were 
obliged  to  charge  it  much  higher  than  the  natural  price,  which,  if  it  had  been 
let  alone,  would  have  found  its  level,  in  order  to  compensate  for  the  oppro- 
brium, and  frequently  the  plunder,  which  they  suffered ;  and  hence  the 


Great  Britain.  9 

usual  rate  of  interest  was  what  we  should  now  call  most  exorbitant  and 
scandalous  usury."  Macpherson's  History  of  Commerce,  vol.  i.  p.  400.  The 
extraordinary  risks  to  which  lenders  were  exposed  rendered  the  premium 
of  insurance  on  all  sorts  of  capital  excessively  high ;  for,  of  the  fifty  and 
even  a  hundred  per  cent.,  which  borrowers  then  frequently  engaged  to  pay 
as  interest,  not  more  than  eight  or  ten  per  cent,  can  properly  be  said  to 
have  been  given  for  the  productive  services  of  capital.  The  rest  must  be 
considered  as  a  bonus,  to  compensate  the  lender  for  the  hazard  he  encoun- 
tered of  losing  the  principal  itself.  It  is  impossible  to  form  any  very  accu- 
rate estimate  of  the  rate  .of  profit  in  the  Middle  Ages ;  yet  several  striking 
facts  may  be  adduced  in  support  of  the  opinion  here  advanced.  At  Verona, 
in  1228,  the  interest  of  money  was  fixed  by  law  at  twelve  and  a  half  per 
cent.  Towards  the  end  of  the  fourteenth  century,  the  republic  of  Genoa 
paid  only  from  seven  to  ten  per  cent,  to  her  creditors ;  and  the  average  dis- 
count on  good  bills  at  Barcelona,  in  1435,  is  stated  to  have  been  about  ten 
per  cent.  But  whilst  the  rate  of  interest  in  Italy  and  Catalonia,  where  a 
considerable  degree  of  freedom  was  allowed  to  the  parties  concerned  in 
bargaining  for  a  loan,  was  thus  comparatively  moderate,  it  was,  in  despite  of 
its  total  prohibition,  incomparably  higher  in  France  and  England.  Matthew 
Paris  says  that  in  the  reign  of  Henry  III.,  the  debtor  paid  ten  per  cent, 
every  two  months  ;  and  this,  though  absolutely  impossible  as  a  general 
practice,  may  not  have  been  very  far  from  the  average  interest  charged  on 
the  few  loans  that  were  then  contracted  for.  (Hallam's  History  of  the  Mid- 
dle Ages,  vol  iii.  p.  402.) 

In  France,  the  rate  of  interest  was  fixed  at  five  per  cent,  so  early  as  1665 ; 
and  this,  a  few  short  intervals  only  excepted,  continued  to  be  the  legal  rate 
until  the  Revolution.  Laverdy,  in  1766,  reduced  it  from  five  to  four  per 
cent.  Instead,  however,  of  the  market  rate  being  proportionably  reduced, 
it  was  raised  from  five  to  six  per  cent.  Previously  to  the  promulgation  of 
the  edict,  loans  might  have  been  obtained  on  good  security  at  five  per  cent.; 
but  an  additional  per  cent,  was  now  required  to  cover  the  risk  of  illegality. 
This  caused  the  speedy  abandonment  of  the  measure.  (Storch,  Traite 
d'Economie  Politique,  torn.  iii.  p.  187.) 

The  same  thing  happened  in  Livonia,  in  1786,  when  the  empress  Cath- 
erine reduced  the  legal  rate  of  interest  from  six  to  five  per  cent.  Hitherto, 
says  Storch  (in  loco  supra  citato),  those  who  had  good  security  to  offer 
were  able  to  borrow  at  six  per  cent.;  but  henceforth  they  had  to  pay  seven 
per  cent,  or  upwards.  And  such  will  be  found  to  have  been  invariably  the 
case,  wherever  governments  have  interfered  to  reduce  the  statutory  below 
the  market  rate  of  interest. 


History  of  the  Laws  regulating  the  Rate  of  Interest  in  England. 

From  the  earliest  period  of  the  history  of  England  down  to  the  reign  of 
Henry  VIIL,  the  taking  of  interest  was  absolutely  forbidden  to  all  persons 
within  the  realm  except  Jews  and  foreigners,  who,  nevertheless,  were  fre- 
quently plundered  for  the  sake  of  enriching  the  crown,  under  the  miserable 
pretext  of  punishment  for  what  were  then  called  their  "  hellish  extortions." 
The  disorders  occasioned  by  this  ruinous  interference  on  the  part  of  govern- 


10  Interest. 

ment  at  length  became  so  obvious,  that,  notwithstanding  the  powerful  preju- 
dices to  the  contrary,  a  statute  was  passed  in  1546  (37  Hen.  VIII.  cap.  7), 
legalizing  the  taking  of  interest  to  the  extent  of  ten  per  cent,  per  annum ; 
and  this  because,  as  is  recited  in  the  words  of  the  act,  the  statutes,"  prohib- 
iting interest  altogether  have  so  little  force,  that  little  or  no  punishment  hath 
ensued  to  the  offenders."  In  the  reign  of  Edward  VI.  the  horror  against 
taking  interest  seems  to  have  revived  in  full  force  ;  for,  in  1552,  the  taking 
of  any  interest  was  again  prohibited,  "  as  a  vice  most  odious  and  detestable," 
and  "  contrary  to  the  word  of  God."  But,  in  spite  of  this  tremendous  de- 
nunciation, the  ordinary  rate  of  interest,  instead  of  being  reduced,  immedi- 
ately rose  to  fourteen  per  cent.,  and  continued  at  this  rate  until,  in  1571, 
an  act  was  passed  ( 13  Eliz.  cap.  8)  repealing  the  act  of  Edward  VI.,  and 
reviving  the  act  of  Henry  VIII.,  allowing  ten  per  cent,  interest.  In  the  pre- 
amble to  this  act  it  is  stated,  "  that  the  prohibiting  act  of  King  Edward  VI. 
had  not  done  so  much  good  as  was  hoped  for ;  but  that  rather  the  vice  of  usury 
hath  much  more  exceedingly  abounded,  to  the  utter  undoing  of  many  gentle- 
men, merchants,  occupiers,  and  others,  and  to  the  importable  hurt  of  the 
commonwealth."  This  salutary  statute  was  opposed,  even  by  those  who,  it 
might  have  been  expected,  would  have  been  among  the  first  to  emancipate 
themselves  from  the  prejudices  of  the  age,  with  all  the  violence  of  ignorant 
superstition.  Dr.  John  Wilson,  a  man  famous  in  his  day,  and  celebrated 
for  the  extent  and  solidity  of  his  learning,  stated  in  his  place  in  the  House 
of  Commons,  that  "  it  was  not  the  amount  of  the  interest  taken  that  con- 
stituted the  crime ;  but  that  all  lending  for  any  gain,  be  it  ever  so  little,  was 
wickedness  before  God  and  man,  and  a  damnable  deed  in  itself,  and  that 
there  was  no  mean  in  this  vice  any  more  than  in  murder  or  theft."  In  order 
to  quiet  the  consciences  of  the  bench  of  bishops,  a  clause  was  actually  in- 
serted, declaring  all  usury  to  have  been  forbidden  by  the  law  of  God,  and 
to  be  in  its  nature  sin,  and  detestable.  When  first  enacted,  this  statute  was 
limited  to  a  period  of  five  years ;  but,  "  forasmuch  as  it  was  by  proof  and 
experience  found  to  be  very  necessary  and  profitable  for  the  commonwealth 
of  this  realm,"  it  was  in  the  same  reign  made  perpetual.  (39  Eliz.  cap.  18.) 

In  the  21st  of  James  I.  the  legal  rate  of  interest  was  reduced  to  eight 
per  cent.,  by  an  act  to  continue  for  seven  years  only,  but  which  was  made 
perpetual  in  the  succeeding  reign.  (3  Car.  I.  cap.  4.)  During  the  common- 
wealth, the  legal  rate  of  interest  was  reduced  to  six  per  cent.,  a  reduction 
which  was  afterwards  confirmed  by  the  act  12  Car.  II.  And,  finally,  in  the 
reign  of  Queen  Anne,  a  statute  (12  Anne,  cap.  16)  was  framed  reducing 
the  rate  of  interest  to  five  per  cent.,  at  which  it  now  stands. 

In  the  preamble  to  this  statute,  it  is  stated,  that  "whereas  the  reducing 
interest  to  ten,  and  from  thence  to  eight,  and  thence  to  six,  in  the  hundred, 
hath  from  time  to  time,  by  experience,  been  found  very  beneficial  to  the 
advancement  of  trade  and  the  improvement  of  lands,  it  is  become  ab- 
solutely necessary  to  reduce  the  high  rate  of  interest  of  six  per  cent,  to  a 
nearer  proportion  to  the  interest  allowed  for  money  in  foreign  states."  It 
was  for  these  reasons  enacted,  that  all  bargains  or  contracts  stipulating  for 
a  higher  rate  of  interest  than  five  per  cent,  should  be  utterly  void.  And 
"  that  all  persons  who  should  after  that  time  receive,  by  means  of  any  cor- 
rupt bargain,  loan,  exchange,  chevizance,  or  interest,  of  any  wares,  mer- 
chandise, or  other  thing  whatever,  or  by  any  deceitful  way  or  means,  or  by 


Eighteenth   Century.  1 1 

any  covin,  engine,  or  deceitful  conveyance  for  the  forbearing  or  giving  day 
of  payment,  for  one  whole  year,  for  their  money  or  other  thing,  above  the 
sum  of  £5  for  £100  for  a  year,  should  forfeit,  for  every  such  offence,  the 
triple  value  of  the  moneys  or  other  things  so  lent,  bargained,"  etc. 


Laws  regulating  the  Rate  of  Interest  in  Scotland ;  in  Ireland. 

In  Scotland,  previously  to  the  Reformation,  no  interest  could  be  legally 
exacted  for  money.  But  this  great  event,  by  weakening  the  force  of  those 
religious  prejudices,  which  had  chiefly  dictated  the  laws  prohibiting  interest, 
occasioned  the  adoption  of  sounder  opinions  on  the  subject,  and  led  to  the 
enactment  of  the  statute  of  1587  (11  Parlt.  Jac.  VI.  cap  52),  which  legal- 
ized the  taking  of  interest  to  the  extent  of  ten  per  cent.  In  1 633,  the  legal 
rate  was  reduced  to  eight  per  cent,  and  in  1661,  to  six  per  cent.  The  stat- 
ute of  Queen  Anne,  reducing  the  rate  of  interest  to  five  per  cent.,  extended 
to  both  kingdoms. 

The  statutes  prohibiting  the  taking  of  interest  in  Ireland  were  not  re- 
pealed until  1635,  when,  by  the  statute  10  Car.  I.  cap.  22,  liberty  was  given 
to  stipulate  for  interest  to  the  extent  often  per  cent.  In  1704,  this  rate  was 
reduced  to  eight  percent.;  in  1722,  it  was  reduced  to  seven  per  cent.,  and 
in  1732,  it  was  further  reduced  to  six  per  cent.,  at  which  it  has  since  contin* 
ued  fixed. 


Comparison  between  the  Market  Rate  and  Statutory  Rate  of  Interest  from  1714  to  1793. 

It  has  been  observed  by  Dr.  Smith,  that  the  different  statutory  regula- 
tions, reducing  the  rate  of  interest  in  England,  were  made  with  great  pro- 
priety. Instead  of  preceding,  they  followed  the  fall  which  was  gradually 
taking  place  in  the  market  rate  of  interest ;  and,  therefore,  did  not  con- 
tribute, as  they  otherwise  must  have  done,  to  raise  the  rate  which  they  were 
intended  to  reduce.  Sir  Josiah  Child,  whose  celebrated  Treatise,  recom- 
mending a  reduction  of  interest  to  four  percent,  was  published  about  1670, 
states  positively,  that  the  goldsmiths  in  London,  who  then  acted  as  bankers, 
could  obtain  as  much  money  as  they  pleased  upon  their  servant's  notes  only, 
at  four  and  a  half  per  cent.  The  supposed  insecurity  of  the  revolutionary 
establishment,  and  the  novelty  of  the  practice  of  funding,  occasioned  the 
payment  of  a  high  rate  of  interest  for  a  considerable  portion  of  the  sums 
borrowed  by  the  public  in  the  reigns  of  William  III.  and  Anne  ;  but  pri- 
vate persons  of  undoubted  credit  could  then  borrow  at  less  than  five  per 
cent.  During  the  reign  of  George  II.  the  market  rate  of  interest  fluctu- 
ated from  three  to  four  and  four  and  a  half  per  cent.  On  the  18th  of  De- 
cember, 1752,  the  three  per  cents,  brought  the  highest  price  they  have 
hitherto  reached,  namely,  106£  per  cent.  On  the  20th  of  September,  1797, 
the  day  on  which  the  failure  of  Lord  Malmesbury's  attempt  to  negotiate 
with  the  French  republic  transpired,  consols  fell  to  47-|,  being  the  lowest 
price  at  which  they  have  ever  been  sold. 

Dr.  Smith  mentions,  that  the  increased  means  of  profitably  investing  cap- 
ital acquired  during  the  war  which  terminated  in  1763,  raised  the  market 


12  .  Interest. 

rate  of  interest,  subsequently  to  the  peace  of  Paris,  to  a  level  with  the  stat- 
utory rate,  or  perhaps  higher.  But  this  rise  was  only  temporary,  and  it 
was  not  until  the  late  war  that  any  very  material  or  general  inconvenience 
was  found  to  result  from,  the  limitation  of  the  rate  of  interest  to  five  per  cent. 


Expedients  for  Defeating  the  Laws  limiting  the  Rate  of  Interest. 

It  is  necessary,  however,  to  observe  that  this  remark  applies  exclusively 
to  the  loans  negotiated  by  individuals  who  could  offer  unexceptionable  secu- 
rity ;  for  ever  since  the  passing  of  the  act  of  1714,  persons  engaged  in  em- 
ployments of  more  than  ordinary  hazard,  whose  character  for  prudence  and 
punctuality  did  not  stand  high,  or  who  could  only  offer  inferior  security, 
were  unable  to  borrow  at  five  per  cent.,  and  have  in  consequence  been 
compelled  to  resort  to  a  variety  of  schemes  for  defeating  and  evading  the 
enactments  in  the  statute.  The  most  common  device  was  the  sale  of  an 
annuity.  Thus,  supposing  an  individual  whose  personal  credit  was  not  good, 
and  who  had  only  the  life-rent  of  an  estate  to  give  in  security,  wanted  to 
borrow  any  given  sum,  he  sold  an  annuity  to  the  lender  sufficient  to  pay 
the  interest  stipulated  for,  which,  because  of  the  risks  and  odium  attending 
such  transactions,  was  always  higher  than  the  market  rate,  and  also  to  pay 
the  premium  necessary  to  insure  payment  of  the  principal  on  the  death  of 
the  borrower.  It  is  curious  to  observe,  that  although  the  sale  of  an  irre- 
deemable life  annuity,  at  a  rate  exceeding  legal  interest,  was  not  reckoned 
fraudulent  or  usurious,  yet,  so  late  as  1743,  Lord  Hardwicke  held,  that  in 
their  less  exceptionable  form,  or  when  they  were  redeemable,  annuities  could 
only  be  looked  upon  as  an  evasion  of  the  statute  of  usury,  and  a  loan  of 
money.  ( Considerations  on  the  Sate  of  Interest,  by  E.  B.  Sugden,  Esq. 
Pamphleteer,  vol.  viii.  p.  278.)  But  the  extreme  inexpediency  of  this  dis- 
tinction soon  became  obvious,  and  the  law  on  this  subject  is  now  entirely 
changed.  The  greater  extension  of  the  traffic  in  annuities,  and  the  advan- 
tage of  giving  as  much  publicity  as  possible  to  such  transactions,  led  to 
various  parliamentary  inquiries  and  regulations  respecting  them  in  the 
early  part  of  the  reign  of  his  late  majesty.  The  consequence  has  been,  that 
irredeemable  annuities  are  now  nearly  unknown,  and  that  the  sale  of  a  re- 
deemable annuity  cannot  be  impeached,  although  it  should  appear  on  the 
face  of  the  deeds  that  the  lender  had  secured  the  principal  by  effecting  an 
assurance  of  the  borrower's  life.  By  the  act  53  Geo.  III.  cap.  141,  it  is 
enacted,  "  That  a  memorial,  setting  forth  the  date  of  every  deed,  bond,  in- 
strument, or  other  assurance,  whereby  an  annuity  or  rent-charge  shall  be 
granted  for  one  or  more  life  or  lives,  or  for  a  certain  number  of  years,  the 
names  of  all  the  witnesses,  and  of  all  the  parties  thereto,  the  sum  given  for 
the  security,  and  the  amount  of  the  annuity  itself,  shall  be  registered  in  the 
Court  of  Chancery."  This  act  only  applies  to  England  and  Wales. 

During  the  greater  part  of  the  late  war,  however,  the  usury  laws  op- 
erated, not  to  the  prejudice  of  one,  but  of  all  classes  of  borrowers.  The 
extent  of  the  loans,  the  high  rate  of  interest  given  by  the  state,  the  facility 
of  selling  out  of  the  funds,  the  regularity  with  which  the  dividends  were 
paid,  and  the  temptations  arising  from  the  fluctuations  in  the  price  of  funded 
property,  diverted  so  large  a  proportion  of  the  floating  capital  of  the  country 


House  of  Commons.  13 

into  the  coffers  of  the  treasury  as  to  render  it  next  to  impossible  for  a  pri- 
vate individual  to  borrow  at  the  legal  rate  of  interest,  except  from  the  trus- 
tees of  public  companies,  or  through  the  influence  of  circumstances  of  a 
very  peculiar  nature.  The  proprietors  of  unincumbered  freehold  estates, 
of  which  they  had  the  absolute  disposal,  were  almost  universally  obliged  to 
resort  to  those  destructive  expedients  which  had  formerly  been  the  resource 
only  of  spendthrifts,  and  persons  in  the  most  desperate  circumstances. 
Annuities  were  not  unfrequently  granted  for  the  term  of  several  lives,  at 
the  rate  of  twelve,  fourteen,  fifteen,  and  even  twenty  per  cent.,  exclusive 
of  the  premium  of  insurance  on  the  lives  of  the  persons  named  in  the  grant 
of  the  annuities.  Mr.  Onslow,  in  his  speech  on  the  usury  laws,  23d  of  May, 
1816,  mentions  that  he  knew  the  case  of  a  gentleman  possessed  of  a  very 
large  estate  in  fee-simple,  who  had  been  compelled  to  grant  an  annuity  for 
four  lives  (and  the  survivor  of  them),  named  by  the  grantee,  for  eight 
years'  purchase. 

House  of  Commons1  Report  on  the  Usury  Laivs. 

The  Report  of  the  Committee  on  the  Usury  Laws,  laid  before  the  House  of 
Commons  in  1818,  contains  much  valuable  evidence,  establishing  the  impol- 
icy and  the  pernicious  effects  of  these  laws  in  the  clearest  manner.  Mr. 
Sugden,  a  gentleman  very  extensively  concerned  in  the  management  of 
landed  property,  stated  that  when  the  market  rate  of  interest  rose  above 
the  legal  rate,  the  landed  proprietor  was  compelled  to  resort  to  some  shift 
to  evade  the  usury  laws.  For  this  purpose,  Mr.  Sugden  informed  the  com- 
mittee he  had  "  known  annuities  granted  for  three  lives,  at  ten  per  cent,  upon 
the  fee-simple  estates,  unincumbered,  and  of  great  annual  value,  in  a  regis- 
ter county.  He  had  also  known  annuities  granted  for  four  lives,  and  more 
would  have  been  added,  but  for  the  danger  of  equity  setting  aside  the 
transaction  on  account  of  the  inadequacy  of  the  consideration.  Latterly, 
many  annuities  were  granted  for  a  term  of  years  certain,  not  depending 
upon  lives."  On  being  asked  whether,  if  there  were  no  laws  limiting  the 
rate  of  interest,  better  terms  could  or  could  not  have  been  obtained,  Mr. 
Sugden  answered,  "  I  am  decidedly  of  opinion  that  better  terms  could  have 
been  obtained  ;  for  there  is  a  stigma  which  attaches  to  men  who  lend  money 
upon  annuities,  that  drives  all  respectable  men  out  of  the  market.  Some 
leading  men  did  latterly  embark  in  such  transactions,  but  I  never  knew  a 
man  of  reputation  in  my  own  profession  lend  money  in  such  a  manner, 
although  we  have  the  best  means  of  ascertaining  the  safest  securities,  and 
of  obtaining  the  best  terms. 

"  In  all  loans,  two  solicitors  are  invariably  concerned,  one  for  the  borrower 
and  one  for  the  lender ;  and  although  the  borrower  always  pays  the  ex- 
pense of  the  securities,  yet  a  regular  professional  bill  is  invariably  made 
out ;  whereas,  in  the  case  of  an  annuity,  although  it  is  in  strictness  a  loan, 
only  one  solicitor  is  employed,  and  he  never  makes  out  a  regular  bill,  but 
charges  what  is  termed  a  lumping  sum,  for  all  his  expense  and  trouble  in  the 
transaction."  And, in  another  place, Mr.  Sugden  observes,  the  "temptation 
on  the  part  of  a  solicitor  to  lend  money  upon  annuities  is  very  strong,  be- 
cause, without  any  check  upon  his  charges,  he  demands  whatever  sum  he  pleases, 
and  he  takes  care  that  it  is  instantly  paid ;  for  in  no  instance  is  the  borrower 


14  Interest. 

allowed  to  leave  the  room  until  he  has  paid  the  solicitor's  charge"  "  Nothing," 
Mr.  Sugden  justly  adds,  "  short  of  a  repeal  of  the  usury  laws,  can  put  a  stop 
to  the  abuses  which  attend  grants  of  annuities ;  they  strongly  encourage  a 
spirit  of  gambling  ;  for,  as  the  repayment  of  the  money  lent  cannot  be  en- 
forced, and  the  annuity  is  granted  upon  a  contingency,  the  borrower  too 
frequently  neglects  to  provide  for  the  payment  of  the  loan,  and  trusts  to 
chance  for  the  determination  of  the  annuity." 

"  The  laws  against  usury,"  says  Mr.  Holland,  partner  of  the  house  of 
Baring,  Brothers,  and  Company,  and  one  of  the  best-informed  merchants  in 
the  country,  "  drive  men  in  distress,  or  in  want  of  money,  to  much  more 
disastrous  modes  of  raising  it  than  they  would  adopt  if  no  usury  laws  existed. 
The  landowner  requires  capital  to  increase  his  live  stock,  or  improve  his 
land,  or  for  any  other  pui'pose,  at  a  period  when  the  government  is  borrow- 
ing money  at  above  five  per  cent.,  or  when  the  funds  give  a  greater  interest 
than  five  per  cent.;  no  one  will  then  lend  to  the  landowner,  because  his 
money  is  worth  more  to  him  than  the  law  allows  him  to  take ;  the  landowner 
must,  therefore,  either  give  up  his  improvements,  or  borrow  money  on  an- 
nuity interests,  on  much  more  disadvantageous  terms  than  he  could  have  done 
if  no  law  existed  against  usury.  The  man  in  trade  in  want  of  money  for 
an  unexpected  demand,  or  disappointed  in  his  returns,  must  fulfil  his  engage- 
ments or  forfeit  his  credit.  He  might  have  borrowed  money  at  six  per  cent., 
but  the  law  allows  no  one  to  lend  it  to  him,  and  he  must  sell  some  of  the 
commodity  he  holds,  at  a  reduced  price,  in  order  to  meet  his  engagements. 
For  example,  he  holds  sugar,  which  is  worth  80s.;  but  he  is  compelled  to 
sell  it  immediately  for  70s.  to  the  man  who  will  give  him  cash  for  it,  and 
thus  actually  borrows  money  at  twelve  and  a  half  per  cent.,  which,  had  the 
law  allowed  him,  he  might  have  borrowed  from  a  money-dealer  at  six  per 
cent.  It  is  known  to  every  merchant,  that  cases  of  this  kind  are  common 
occurrences  in  every  commercial  town,  and  more  especially  in  the  metropolis. 
A  man  in  distress  for  money  pays  more  interest,  owing  to  the  usury  laws, 
than  he  would  if  no  such  laws  existed ;  because  now  he  is  obliged  to  go  to 
some  of  the.  disreputable  money-lenders  to  borrow,  as  he  knows  the  respect- 
able money-lender  will  not  break  the  laws  of  his  country.  The  disreputable 
money-lender  knows  that  he  has  the  ordinary  risk  of  his  debtor  to  incur  in 
lending  his  money,  and  he  has  further  to  encounter  the  penalty  of  the  law, 
for  both  of  which  risks  the  borrower  must  pay.  If  no  usury  laws  existed 
in  common  cases,  and  where  a  person  is  respectable,  he  might  obtain  a  loan 
from  the  respectable  money-lender,  who  would  then  only  have  to  calculate 
his  ordinary  risk,  and  the  compensation  for  the  use  of  his  money." 


Resolutions  of  the  Committee. 

In  every  part  of  the  appendix  to  the  Report,  we  meet  with  equally  con- 
clusive evidence  of  the  pernicious  effects  of  the  laws  restraining  the  rate  of 
( interest.  And  the  committee  admitted  the  full  force  of  this  evidence,  by 
agreement  to  the  following  resolutions  :  1st.  "  That  it  is  the  opinion  of  this 
committee  that  the  laws  regulating  or  restraining  the  rate  of  interest  have 
been  extensively  evaded,  and  have  failed  of  the  effect  of  imposing  a  maxi- 
mum ou  such  rate ;  and  that  of  late  years,  from  the  constant  excess  of  the 


Effects  of  Usury  Laws.  15 

market  rate  of  interest  above  the  rate  limited  by  law,  they  have  added  to 
the  expense  incurred  by  borrowers  on  real  security,  and  that  such  borrowers 
have  been  compelled  to  resort  to  the  mode  of  granting  annuities  on  lives ; 
a  mode  which  has  been  made  a  cover  for  obtaining  a  higher  rate  of  inter- 
est than  the  rate  limited  by  law,  and  has  farther  subjected  the  borrowers  to 
enormous  charges  or  forced  them  to  make  very  disadvantageous  sales  of 
their  estates.  2d.  That  it  is  the  opinion  of  this  committee,  that  the  construc- 
tion of  such  laws,  as  applicable  to  the  transactions  of  commerce  as  at  pres- 
ent carried  on,  have  been  attended  with  much  uncertainty  as  to  the  legality 
of  many  transactions  of  frequent  occurrence,  and  consequently  been  pro- 
ductive of  much  embarrassment  and  litigation.  3d.  That  it  is  the  opinion 
of  this  committee  that  the  present  period,  when  the  market  rate  of  interest 
is  below  the  legal  rate,  affords  an  opportunity  peculiarly  favorable  for  the 
repeal  of  the  said  laws." 

In  spite,  however,  of  the  recommendation  of  the  committee,  and  of  the 
clear  and  satisfactory  nature  of  the  evidence  on  which  it  is  founded,  the 
popular  prejudice  on  this  subject  continues  so  strong,  that  there  does  not 
seem  much  reason  to  expect  that  this  desirable  measure  will  be  speedily 
effected. 


Pernicious  Effects  of  these  Laws. 

It  is  most  absurdly  supposed,  that,  were  the  laws  limiting  the  rate  of  in- 
terest repealed,  every  individual  who  has  capital  to  lend  would  henceforth 
indulge  in  all  those  mean  and  disgraceful  practices  which  at  present  charac- 
terize the  lowest  classes  of  money  brokers.  But  it  might  just  as  reasonably 
be  supposed,  that,  were  country  gentlemen  allowed  to  sell  game,  they  would 
immediately  become  addicted  to  all  the  vices  of  the  poacher.  The  truth  is, 
that  if  the  rate  of  interest  were  left  to  be  adjusted  by  the  unrestricted  com- 
petition of  the  parties,  there  would  be  almost  no  employment  for  the  inferior 
class  of  money-dealers.  Except  when  the  market  rate  of  interest  is  below 
the  legal  rate,  the  usury  laws  prevent  all  persons,  whose  credit  is  not  ex- 
tremely good,  from  obtaining  loans  from  capitalists  of  the  highest  character, 
and  force  them  to  have  recourse  to  those  who  are  less  scrupulous.  Sup- 
posing the  market  rate  of  interest  to  be  six  or  seven  per  cent.,  an  individ- 
ual in  ordinarily  good  credit  might,  were  the  usury  laws  abolished,  easily 
obtain  a  loan  at  that  rate.  But  the  law  having  declared  that  no  more  than 
five  per  cent,  shall  be  taken,  and  consequently  having  affixed  a  species  of 
stigma  to  those  lenders  who  bargain  for  a  higher  rate,  necessarily  excludes 
the  rich  and  more  respectable  capitalists  from  the  market,  and  obliges  bor- 
rowers to  resort  to  those  of  an  inferior  character,  who,  in  addition  to  the 
premium  for  the  risk  incurred  by  entering  into  an  illegal  transaction,  must 
receive  an  indemnification  for  the  odium  which  in  such  cases  always  at- 
taches to  the  lender.  It  is  idle  and  ridiculous  to  attempt  to  secure  individu- 
als against  the  risk  of  imposition  in  pecuniary,  more  than  in  any  other  species 
of  transactions.  But  although  the  object  were  really  desirable,  it  could 
not  possibly  be  obtained  by  such  inadequate  means.  The  usury  laws  gene- 
rate the  very  mischief  they  are  intended  to  suppress.  Far  from  diminish- 
ing, they  most  unquestionably  multiply  usurious  transactions  in  a  tenfold 


16  Interest. 

proportion,  and  powerfully  aggravate  all  the  evife  they  were  designed  either 
to  mitigate  or  remove. 

Nothing  can  be  more  unreasonable,  or  more  entirely  unfounded,  than  the 
clamor  that  has  been  set  up  against  usurers,  as  money-lenders  are  sometimes 
termed,  because  of  their  exacting  a  higher  rate  of  interest  than  ordinary 
from  prodigals  and  spendthrifts.  This,  surely,  is  the  most  proper  and  efficient 
check  that  can  be  put  upon  the  thoughtless  or  unprincipled  extravagance  of 
such  persons.  Supposing  the  security  of  a  prodigal  and  of  an  industrious 
man  to  be  nearly  equal,  and  this  can  scarcely  ever  be  the  case,  does  not  the 
capitalist,  who  would  lend  to  the  latter  at  a  lower  rate  of  interest  than  he 
would  lend  to  the  former,  confer  a  real  service  on  his  country  ?  Does  he 
not  prevent  those  funds  which  ought  to  be  employed  in  supporting  useful 
labor,  and  in  adding  to  the  real  wealth  of  the  nation,  from  being  wasted  in 
ridiculous  extravagances  or  boisterous  dissipation  ? 


They  do  not  protect  the  Prodigal  and  Unwary. 

But,  perhaps,  we  shall  be  told  that  this  is  mistaking  the  object  of  the  usu- 
ry laws ;  that  they  were  not  intended  to  force  capitalists  to  lend  to  spend- 
thrifts at  the  same  rate  of  interest  as  to  industrious  persons,  but  to  protect 
the  prodigal  and  unwary  from  the  extortion  of  usurers,  by  declaring  any 
stipulation  between  them  for  more  than  a  given  rate  of  interest,  to  be  null 
and  void.  But  why  all  this  solicitude  about  the  least  valuable  class  of  so- 
ciety ?  Why  fetter  and  restrict  the  free  circulation  of  capital  amongst  those 
who  would  turn  it  to  the  best  account,  lest  any  portion  of  it  might  chance 
to  fall  into  the  hands  of  those  who  would  squander  it  away  ?  If  the  preven- 
tion of  prodigality  be  an  object  of  sufficient  importance  to  justify  the  inter- 
ference of  the  legislature,  why  not  at  once  put  the  prodigal  under  an  in- 
terdict ?  This  is  the  only  way  in  which  it  is  possible,  to  restrict  him.  It  is 
not  so  much  by  borrowing  money  at  high  interest,  as  by  contracting  debts  to 
merchants,  on  whose  charge  there  is  no  check,  that  spendthrifts  generally  run 
through  their  fortunes.  Mr.  Bentham  has  justly  observed,  that  so  long  as  a 
man  is  looked  upon  as  one  who  will  pay,  he  can  much  easier  get  the  goods  he 
wants  than  he  could  the  money  to  buy  them  with,  though  he  were  con- 
tent to  give  for  it  twice  or  thrice  the  ordinary  rate  of  interest.  How  ridic- 
ulous is  it,  then,  to  stimulate  this  natural  facility  of  purchasing,  to  permit 
prodigals  to  borrow  (for  it  is  really  borrowing)  the  largest  supplies  of  food, 
clothes,  etc.,  at  twenty,  thirty,  or  even  an  hundred  per  cent,  interest,  at  the 
same  time  that  we  inflict  a  real  injury  on  every  other  class  of  society,  rather 
than  permit  them  to  borrow  the  smallest  supply  of  money  at  more  than  five 
per  cent.  Instead  of  being  of  any  service,  this  restriction  is  evidently  inju- 
rious to  the  prodigal.  It  narrows  his  choice,  and  drives  him  from  a  market 
which  might  have  proved  much  less  disadvantageous,  to  one  in  which  no 
disgrace  attaches  to  the  exaction  of  the  most  exorbitant  interest,  and  where 
he  can  scarcely  escape  being  ruined. 

Neither  is  the  outcry  raised  against  capitalists  for  taking  advantage  of 
the  necessities  of  industrious  individuals,  in  any  degree  better  founded  than 
that  which  is  raised  against  them  for  taking  advantage  of  the  extravagant 


Holland.  17 

and  thoughtless  disposition  of  the  prodigal  or  the  simple.  According  as  a 
person  has  a  character  for  sobriety,  and  for  punctuality  in  making  his  en- 
gagements, and  according  to  the  presumed  state  of  his  affairs  at  the  time, 
so  will  he  be  able  to  borrow.  To  say  that  a  capitalist  took  advantage  of  the 
necessities  of  any  individual,  is  only  saying  that  he  refused  to  lend  to  a 
person  in  suspicious  or  necessitous  circumstances  at  the  same  rate  of  interest 
he  would  have  done  had  he  been  in  high  credit,  or,  which  is  the  same  thing, 
had  there  been  no  risk  of  losing  the  principal ;  and  had  he  not  acted  in 
this  manner,  should  we  not  have  justly  considered  him  as  a  fool  or  a  mad- 
man ? 

But  as  has  already  been  shown,  whatever  may  be  the  extortion  of  lend- 
ers, the  usury  laws  afford  no  means  of  checking  it ;  on  the  contrary,  they 
compel  the  borrowers  to  pay,  over  and  above  the  common  rate  of  interest,  a 
premium  sufficient  to  indemnify  the  lender  for  the  risk  and  odium  incurred 
in  breaking  them.  They  attempt  to  remedy  what  is  not  an  evil,  and  what, 
consequently,  ought  not  to  be  interfered  with  ;  and  in  doing  this  they  neces- 
sarily create  a  real  grievance.  What  should  we  have  thought  of  an  act  of 
parliament  to  compel  the  underwriters  to  insure  a  gunpowder  magazine  and 
a  salt  warehouse  on  the  same  terms  ?  Yet  this  would  not  have  been  in  any 
respect  more  absurd,  than  to  enact  that  the  same  rate  of  interest  should  be 
charged  on  capital  lent  to  those  whose  security  is  widely  different. 


There  were  no  Usury  Laws  in  Holland. 

Luckily,  we  are  not  left  to  infer  from  general  principles,  however  well 
established,  the  many  advantages  that  would  result  from  a  repeal  of  the 
laws  limiting  the  rate  of  interest.  The  case  of  Holland  furnishes  a  practical 
and  striking  proof  of  the  correctness  of  the  theory  we  have  been  endeavor- 
ing to  establish.  It  is  an  undoubted  fact,  that  the  rate  of  interest  has  been, 
for  a  very  long  period,  lower  in  Holland  than  in  any  other  country  in  Eu- 
rope ;  and  yet  Holland  is  the  only  country  in  which  usury  laws  are  alto- 
gether unknown,  where  capitalists  are  allowed  to  demand  and  borrowers 
to  pay  any  rate  of  interest.  Strictly  speaking,  this  applies  only  to  the  state 
of  Holland  previously  to  the  revolution  in  1795.  The  enactments  of  the 
Code  Napoleon  were  subsequently  introduced ;  but  it  appears  from  the  Ke- 
port  of  the  Parliamentary  Committee  on  the  Usury  Laws,  that  they  have 
not,  in  any  instance,  been  acted  upon.  Notwithstanding  all  the  violent 
changes  of  the  government,  and  the  extraordinary  derangement  of  her 
financial  concerns  in  the  course  of  the  last  twenty  years,  the  rate  of  interest 
in  Holland  has  continued  comparatively  steady.  During  the  whole  of  that 
period,  persons  who  could  offer  unexceptionable  security  have  been  able  to 
borrow  at  from  three  to  five  and  a  half  per  cent.;  nor  has  the  average  rate 
of  interest  charged  on  capital,  advanced  on  the  worst  species  of  security, 
ever  exceeded  six  or  seven  per  cent.,  except  when  the  government  was  nego- 
tiating a  forced  loan.  The  general  rate  of  discount  in  Holland  is  from  four 
to  five  per  cent.,  and  occasionally  from  three  to  three  and  a  half  per  cent., 
but  very  seldom  lower.  During  the  revolution,  it  had  been  from  six  to 
seven  per  cent.,  and  even  at  eight ;  but  this  was  generally  owing  to  some 
forced  financial  operation  on  account  of  the  government,  and  was  never  of 


18 


Interest, 


long  duration.    The  following  is  the  average  rate  of  discount  at  Amster- 
dam and  Rotterdam  from  1795  to  1817  :  — 


1795—4,  4J 

1796 — 4,  4| 

1797—4,  4J 

1798-^,  4| 

1799—3,  4, 

1800 — 1,  4J 

1801—4,  4| 

1802—4,  5, 

1803—4,  5 


5. 

5. 
6. 
6. 
6. 
5J,  6. 


1804—4,     4j,     5, 
1805—4,     5,       5£,     6," 
1806—4,     4£,     5,"      5^ 


6,     9,     12. 


6. 
9. 
6,  9. 


1807 
1808 — 4,  3 
1809—4,  4 
1810—4,  4 
1811—3,  3^ 
1812—3, 
1813—3,  3 
1814—4, 
1815— 5j 


5, 


6. 

4£,  5, 

5,  6. 

5,  6. 

4,  5. 

4,  5. 

4,  5, 

5i,  5, 

6,       6J,  7. 

1816—5*    5i,     6,  6J. 
1817—5,     5j,     6. 


"  The  Bank  of  Amsterdam  neyer  discounts  at  a  higher  rate  than  five  per 
cent.;  but  they  discount  at  a  lower  rate  and  vary  their  discounts  according 
to  the  abundance  of  capital,  never  exceeding  five  per  cent.,  and  occasionally 
as  low  as  two  and  a  half  and  three."  (Mr.  Holland's  evidence,  Report  of 
the  Committee  on  the  Usury  Laws,  p.  45.)  But  in  this  country,  where  the 
law  declares  that  no  more  than  five  per  cent,  shall  be  taken,  the  rate  of 
interest  for  capital  advanced  on  the  best  landed  security  has,  in  the  same 
period,  varied  from  five  to  sixteen  or  seventeen  per  cent.,  or  five  times  as 
much  as  in  Holland.  Surely,  this  ought  to  put  to  rest  all  doubts  as  to  the 
impolicy  and  the  inefficiency  of  the  usury  laws. 

Legal  Bate  of  Interest  in  France. 

In  France,  the  usury  laws  were  abolished  at  the  Eevolution  ;  and  it  is 
distinctly  stated,  that  their  abolition  was  not  attended  by  any  rise  of  interest. 
Storch,  Economic  Politique,  torn.  iii.  p.  187.  According  to  the  Code  Napo- 
leon only  six  per  cent,  irfterest  is  allowed  to  be  taken  in  commercial  affairs, 
and  five  per  cent,  when  money  is  advanced  on  the  security  of  real  property. 
There  is  not,  however,  any  difficulty  in  evading  this  law.  The  method  re- 
sorted to  for  this  purpose  is  to  give  a  bonus  before  completing  the  transac- 
tion, or,  which  is  the  same  thing,  to  frame  the  obligation  for  the  debt  for  a 
larger  sum  than  was  really  advanced  by  the  lender.  None  of  the  parties 
particularly  interested  can  be  called  to  swear  to  the  fact  of  such  a  bonus 
being  given  ;  so  that  the  transaction  is  unimpeachable,  unless  a  third  party, 
who  was  privy  to  the  settling  of  the  affair,  can  be  produced  as  a  witness. 
The  Bank  of  France  never  discounts  at  a  higher  rate  of  interest  than  five 
per  cent.,  but  sometimes  at  a  lower  rate. 


In  Hamburg. 

In  Hamburg,  the  rate  of  interest  is  quite  unrestricted  ;  or,  if  there  be  a 
written  law  restraining  it,  it  has  become  altogether  obsolete.  The  rate, 
therefore,  varies  according  to  circumstances.  Occasionally,  it  has  been  at 
seven,  eight,  and  even  ten  per  cent.;  and  in  1799,  a  period  of  great  mer- 
cantile embarrassment  and  insecurity,  it  was  as  high  as  fourteen  per  cent. 
Generally,  however,  the  rate  of  discount  on  good  bills  does  not  exceed  four 
or  five  per  cent.  Report  on  Usury  Laws,  p.  46. 


Usury  Laws.  19 


In  Russia. 

In  Russia,  the  legal  rate  of  interest  is  six  per  cent.  But  as  Russia  is  a 
country  capable  of  much  improvement,  and  where  there  are  very  great  fa- 
cilities for  the  advantageous  employment  of  capital,  the  market  rate  of 
interest  is  invariably  higher  than  the  statute  rate,  and  the  law  is  as  constant- 
ly as  it  is  easily  evaded.  Ibid.,  and  Storch,  tome  iii.  p.  207. 

In  Austria. 

At  Trieste,  and  throughout  the  Austrian  empire  in  general,  the  usual  rate 
of  interest  is  fixed  by  law  at  six  per  cent.;  but  capital  can  seldom  be  obtained 
for  less  than  eight  or  ten  per  cent.  See  Report,  ubi  supra. 

In  Leghorn. 

At  Leghorn,  the  ordinary  rate  of  interest  is  a  half  per  cent,  per  month, 
or  six  per  cent  per  annum ;  but  there  is  no  law  to  prevent  the  taking  of  a 
higher  rate. 

In  Spain. 

In  Spain,  the  ordinary  rate  of  interest  is  six  per  cent.;  but  no  law  exists 
against  taking  a  higher  rate,  and  it  seldom  falls  below  five  or  rises  above 
seven  per  cent. 

In  the  United  States. 

In  the  United  States,  legal  interest  is  fixed  at  six  per  cent.;  but  the 
market  rate  fluctuates  from  ten  to  twelve  per  cent.  Efforts,  Mr.  Berbeck 
informs  us,  are  now  making  in  various  parts  of  the  Union,  particularly  in 
Virginia  and  North  Carolina,  to  do  away  the  restraints  on  usury,  which,  as 
he  justly  observes,  "  operate  merely  as  a  tax  on  the  needy  borrower."  Letters 
from  Illinois,  p.  36.  f  & 

Usury  Laws  do  not  reach  the  Government. 

If  usury  laws  are  to  have  any  existence,  they  ought  certainly  to  be  made  to 
operate  on  the  greatest  of  all  borrowers  ;  on  those  who  do  not  borrow  on  their 
own  credit  but  on  that  of  others.  Is  it  not  the  extreme  of  folly,  that  whilst 
an  industrious  manufacturer  or  agriculturist  is  prevented  from  giving  more 
than  five  per  cent  for  capital  which  he  might  be  able  to  invest  so  as  to  yield 
ten  or  twelve  per  cent.,  government  should  be  allowed  to  borrow  at  six,  eight, 
ten,  or  twenty  per  cent.?  What  is  this  but  holding  out  a  bait  to  loan-mongers, 
and  causing  the  capital  of  the  country  to  flow  with  an  accelerated  and  un- 
natural velocity  into  the  treasury  ?  Nothing,  surely,  can  be  more  impolitic 
than  this.  If  we  are  to  have  usury  laws,  they  ought  to  operate  alike  on 
every  class  of  borrowers  ;  and  considering  the  superior  attractions  which 
the  facility  of  repossessing  the  principal  gives  to  the  investment  of  capital 
in  the  funds,  the  rate  of  interest  at  which  government  should  be  allowed  to 
borrow  should  be  less  than  the  rate  at  which  private  individuals  might  bor- 
row. 

We  trust,  however,  that  we  have  said  enough  to  show  the  inexpediency 
and  the  pernicious  tendency  of  all  such  regulations.  If  a  landlord  is  to  be 


20  Interest. 

allowed  to  take  the  highest  rent  he  can  get  offered  for  his  land,  a  fanner 
the  highest  price  for  his  raw  produce,  a  manufacturer  for  his  goods,  "why 
should  a  capitalist  be  restricted  and  fettered  in  the  employment  of  his  stock  ? 
Every  principle  of  natural  justice,  and  of  sound  political  expediency,  is 
outraged  by  such  a  distinction. 

So  long  as  the  market  rate  of  interest  continued  higher  than  the  statu- 
tory rate,  it  cannot  be  doubted  that  considerable  inconvenience  would  have 
resulted  from  any  sudden  abolition  of  the  usury  laws.  It  is  certain,  indeed, 
that  this  inconvenience  would  have  been  very  speedily  compensated  by  the 
check  which  the  abolition  would  have  given  to  the  traffic  in  annuities,  and 
by  the  easier  circulation  and  more  advantageous  distribution  of  capital. 
Now,  however,  when  the  market  is  fallen  below  the  statutory  rate  of  inter- 
est, no  inconvenience  could  attend  their  repeal.  It  could  not  lead  to  any 
demand  for  payment  of  borrowed  money,  for  no  individual  would  require 
payment  of  what  he  could  not  relend  to  a  greater  advantage.  But,  while  their 
repeal  would  be  in  no  respect  disadvantageous,  it  would  enable  those  who 
are  engaged  in  employments  of  more  than  ordinary  hazard,  to  procure  ad- 
equate supplies  of  stock  on  more  favorable  terms ;  and  it  would  also  secure 
us  against  the  risk  of  future  mischief  should  the  market  again  rise  above 
the  legal  rate  of  interest.  It  is  unnecessary,  however,  to  urge  the  immedi- 
ate repeal  of  the  usury  laws.  We  think  it  quite  visionary  to  apprehend  any 
danger  from  the  instant  application  of  a  sponge  to  the  whole  of  the  anti- 
usurious  statutes,  but  it  is  enough  if  they  are  repealed  gradually.  To  avoid 
exciting  any  alarm  in  the  minds  of  the  most  timid,  the  rate  at  which  capital 
may  be  legally  lent  at  interest  might  be  annually  raised  one  or  one  and  a 
half  per  cent.,  until  the  rate  had  been  extended  to  eight  or  ten  per  cent., 
when  it  is  clear  every  restrictive  regulation  might  be  abolished  without 
the  possibility  of  the  smallest  derangement  happening  in  consequence. 

Were  the  usury  laws  abolished,  it  would  be  proper  to  frame  a  statute 
which  should  fix  the  interest  to  be  paid  in  those  cases  in  which  no  previ- 
ous agreement  had  been  made  respecting  it.  But,  as  in  cases  of  this  de- 
scription, there  is  very  frequently  considerable  doubt  whether  it  was  the 
intention  of  the  parties  at  the  time  the  transaction  took  place,  that  any  in- 
terest should  be  charged,  it  would  be  proper  to  give  the  borrower  the  full 
benefit  of  this  doubt,  by  fixing  the  rate  payable  in  such  cases  at  the  lowest 
market  rate. 

Error  of  some  Writers  on  the  SuJrject  of  a  Loio  Rate  of  Interest. 

Before  concluding,  we  may  remark,  that  until  the  laws  regulating  the 
rate  of  profit  and  the  increase  of  capital  had  been  accurately  investigated, 
the  great  wealth  and  commercial  prosperity  of  Holland  was  invariably  ap- 
pealed to  as  a  practical  proof  of  the  advantages  of  a  low  rate  of  interest. 
But  Sir  Josiah  Child,  and  those  who  have  insisted  so  much  on  this  example, 
forget  that  the  lowness  of  interest  in  Holland  was  the  necessary  effect  of 
the  circumstances  in  which  that  country  was  placed ;  of  the  lowness  of 
profits,  caused  by  the  oppressiveness  of  taxation,  and  the  deficient  supply 
of  fertile  soil,  and  not  of  any  interference  on  the  part  of  the  government. 
Neither  was  this  lowness  of  interest  any  advantage,  but  a  positive  disad- 
vantage. A  country  whose  average  rate  of  profit,  and  consequently  of  in- 


Profits.  21 

terest,  has  been  reduced  considerably  below  the  level  of  surrounding  na- 
tions, may,  notwithstanding,  abound  in  wealth,  and  be  possessed  of  an 
immense  capital ;  but  it  would  be  the  height  of  error  to  suppose  that  this 
reduction  of  profits  and  interest  could  have  facilitated  their  accumulation. 

Capital  cannot  be  accumulated  otherwise  than  by  a  saving  of  income ; 
and  wherever  incomes  are  large,  and  this  will  always  be  the  case  where  the 
rate  of  profit  is  comparatively  high,  there  must  be  a  proportionably  in- 
creased facility  of  gratifying  the  prevalent  passion  for  accumulation.  The 
case  of  Holland,  far  from  contradicting,  furnishes  a  striking  example  of  the 
truth,  of  this  principle.  Sir  William  Temple  mentions  that  her  trade  was 
rather  on  the  decline  in  1670 ;  and  the  large  capital  of  which  she  was  then 
in  possession  had  been  accumulated  previously  to  her  wars  with  Cromwell, 
and  when  the  rate  of  profit  was  much  higher  than  at  any  subsequent  pe- 
riod. Low  profits  are  a  certain  proof  that  society  has  become  clogged  in 
its  progress.  They  show  that  it  is  approaching,  if  it  has  not  already 
reached,  the  stationary  state,  and  that,  unless  measures  can  be  devised  for 
relieving  the  pressure  on  the  resources  of  the  state,  it  will  be  thrown  back 
in  the  career  of  improvement,  and  outstripped  by  its  neighbors.  The  rate 
of  profit  and  the  rate  of  interest  are  ordinarily  twice  as  high  in  the  United 
States  as  in  Great  Britain  or  France,  and  it  is  to  this  that  the  more  rapid 
advancement  of  the  former  in  wealth  and  population  is  entirely  to  be  as- 
cribed. High  profits,  it  is  true,  may  not  in  every  instance  be  accompanied 
by  a  great  degree  of  prosperity ;  for  a  despotic  government,  or  the  want  of 
sufficient  protection,  may  paralyze  all  the  efforts  of  those  who  are  otherwise 
placed  in  the  most  favorable  circumstances  for  the  accumulation  of  wealth. 

But,  if  the  government  be  equally  liberal,  and  if  property  be  equally  well 
secured,  the  degree  of  national  prosperity  will  be  correspondent  to  the  rate  of 
profit.  The  demand  for  labor,  or,  which  in  effect  is  the  same  thing,  the 
funds  for  supporting  the  largest  and  most  valuable  portion  of  society,  in- 
crease or  diminish  in  exact  proportion  to  the  increase  or  diminution  of 
profits.  Wherever  they  are  high,  the  laborer  is  well  paid,  and  the  so- 
ciety rapidly  augments  both  its  population  and  its  riches ;  on  the  other 
hand,  wherever  they  are  low,  the  demand  for  labor  is  proportionably 
reduced,  and  the  progress  of  society  rendered  so  much  the  slower. 

Instead,  therefore,  of  a  low  rate  of  profit,  and  a  low  rate  of  interest  —  for 
the  one  must  be  always  directly  as  the  other  —  being  any  proof  of  the  flour- 
ishing situation  of  a  country,  it  is  distinctly  and  completely  the  reverse. 
High  profits  show  that  capital  may  be  readily  and  beneficially  invested  in 
the  different  branches  of  industry,  and,  wherever  this  is  the  case,  it  will  be 
better  for  the  borrower  to  pay  a  higher  rate  of  interest  than  it  would  be  for 
huii  to  pay  a  lower  rate,  in  countries  where  there  is  less  facility  of  employ- 
ing his  stock  with  advantage.  The  borrower  who  pays  ten  or  twelve  per 
cent,  for  capital  in  the  United  States,  generally  makes  a  more  profitable 
bargain  than  the  English  borrower  who  pays  only  four  or  five  per  cent.  It 
is  obviously  not  by  the  circumstance  of  the  rate  of  interest  payable  on 
loans  being  absolutely  high  or  low,  but  by  the  proportion  between  that  rate 
and  the  average  rate  of  profit,  that  we  must  determine  whether  they  have 
been  obtained  on  favorable  or  unfavorable  terms. 


ESSAY  ON  EXCHANGE 


BY  J.  R.  McCULLOCH. 


In  Political  Economy,  the  term  Exchange  is  commonly  employed  to 
designate  that  species  of  mercantile  transactions  by  which  the  debts  of 
individuals  residing  at  a  distance  from  each  other  are  either  partially  or 
wholly  liquidated,  without  the  intervention  of  money.  The  object  of  this 
article  is  to  explain  the  nature  of  these  transactions,  and  the  principles  on 
which  they  are  founded. 

This  will  be  best  effected  by  treating,  first,  of  the  exchange  between 
different  parts  of  the  same  country ;  and,  secondly,  of  that  between  differ- 
ent and  independent  countries. 


CHAPTER  I. 


INLAND    EXCHANGE. 

SUPPOSE  a  merchant  of  London  orders  his  agent  in  Glasgow  to  pur- 
chase and  send  to  him  a  thousand  pounds'  worth  of  cottons  ;  then,  although 
it  should  not  suit  the  Glasgow  merchant  to  commission  goods  of  equal 
value  from  his  London  correspondent,  the  latter  may,  nevertheless,  be  under 
no  necessity  of  remitting  cash  to  Glasgow  to  discharge  his  debt.  Among 
cities,  or  countries,  having  a  considerable  intercourse  together,  the  debts 
mutually  due  by  each  other  are  found,  in  ordinary  cases,  to  be  nearly  equal. 
And,  therefore,  the  Glasgow  merchant,  who  has  shipped  the  cottons  for 


Price  of  Inland  Bills.  23 

London,  does  not  transmit  the  bill  drawn  by  him  on  his  correspondent  for 
their  price  directly  to  London  to  be  cashed,  for  that  would  subject  him  to 
the  expense  of  conveying  the  money  home  from  London  to  Glasgow,  but 
he  gets  its  value  from  some  other  merchant  in  Glasgow,  who  has  payments  to 
make  in  London,  on  account  of  teas,  wines,  etc.,  imported  from  that  city, 
and  who,  unless  he  could  procure  such  a  bill,  would  be  obliged  to  remit 
their  price  in  money.  The  bill  on  account  of  the  cottons  is,  therefore,  either 
drawn  in  favor  of  the  person  to  whom  the  money  for  the  tea  and  wine  is 
owing  in  London,  or  it  is  drawn  in  favor  of  the  tea  merchant  in  Glasgow, 
and  indorsed  to  him ;  and  this  last  person,  by  presenting  the  bill  to  the  pur- 
chaser of  the  cottons,  receives  its  value  and  consequently  the  price  of  the 
cottons,  and  the  price  or  part  of  the  price  of  his  tea  and  wine,  at  the  same 
moment.  By  this  simple  contrivance,  the  expense  and  risk  attending  the 
double  transmission,  first,  of  money  from  London  to  Glasgow,  to  pay  the 
cottons,  and,  second,  of  money  from  Glasgow  to  London,  to  pay  the  teas 
and  wines,  is  entirely  avoided.  The  debtor  in  one  place  is  changed  for  the 
debtor  in  the  other ;  and  both  accounts  are  settled  without  the  intervention 
of  a  single  farthing. 

The  bill  drawn  and  negotiated  in  such  a  transaction  is  termed  an  in- 
land bill  of  exchange.  II'  the  transaction  had  taken  place  between  Lon- 
don or  Glasgow  and  a  foreign  city  it  would  have  been  termed  a  foreign 
bill  of  exchange. 

A  bill  of  exchange  may,  therefore,  be  denned  to  be,  "  an  order  ad- 
dressed to  some  person  residing  at  a  distance,  directing  him  to  pay  a 
certain  specified  sum  to  the  person  in  whose  favor  the  bill  is  drawn,  or  his 
order." 

In  mercantile  phraseology,  the  person  who  draws  the  bill  is  termed  the 
drawer ;  the  person  in  whose  favor  it  is  drawn,  the  remitter ;  the  person 
on  whom  it  is  drawn,  the  drawee  ;  and,  after  he  has  accepted,  the  acceptor. 
Those  persons  into  whose  hands  the  bill  may  pass  previously  to  its  being 
paid  are,  from  their  writing  their  names  on  the  back,  termed  indorsers; 
and  the  person  in  whose  possession  the  bill  is  at  any  given  period,  is  termed 
the  holder,  or  possessor. 


Circumstances  which  determine  the  Price  of  Inland  Bills  of  Exchange. 

The  price  of  bills  of  exchange  fluctuates  according  to  the  abundance  or 
scarcity  of  them  in  the  market,  compared  with  the  demand.  Thus,  to 
revert  to  our  former  example,  if  we  suppose  the  debts  reciprocally  due  by 
London  and  Glasgow  to  be  equal,  whether  they  amount  to  £10,000, 
£100,000,  or  any  other  sum,  they  may  all  be  discharged  without  the  agency 
of  money,  and  the  price  of  bills  of  exchange  will  be  at  PAR  ;  that  is,  a 
sum  of  £100  or  £1000  in  Glasgow  will  purchase  a  bill  for  £100  or  £1000 
payable  in  London,  and  v ice  versa.  But  if  these  two  cities  are  not  mutu- 
ally indebted  in  equal  sums,  then  the  price  of  bills  of  exchange  will  be  in- 
creased in  the  city  which  has  the  greatest  number  of  payments  to  make, 
and  will  be  proportionally  reduced  in  that  which  has  the  fewest.  If  Glas- 
gow owe  London  £100,000,  whilst  the  debts  due  by  London  to  Glasgow 
only  amount  to  £90,000,  it  is  clear,  inasmuch  as  the  merchants  of  Glasgow 


24  Essay  on  Exchange. 

have  a  larger  sum  to  remit  to  London  than  the  merchants  of  London  have 
to  remit  to  Glasgow,  that  the  price  of  bills  on  London  would  rise  in 
Glasgow,  because  of  the  increased  competition ;  and  that  the  price  of  bills 
on  Glasgow  would  fall  in  London,  because  of  the  proportionally  dimin- 
ished competition.  And  hence  a  larger  sum  would  be  required  to  discharge 
any  given  amount  of  debt  due  by  Glasgow,  and  a  less  sum  would  be  re- 
quired to  discharge  a  corresponding  amount  of  debt  due  by  London  ;  or. 
which  is  the  same  thing,  the  exchange  would  be  in  favor  of  London  and 
against  Glasgow.  Bills  on  London  would  sell  in  Glasgow  for  a  premium, 
and  bills  on  Glasgow  would  sell  in  London  at  a  discount,  the  amount  of 
the  premium,  in  the  one  case,  and  of  the  discount  in  the  other,  being  obvi- 
ously equal. 

On  the  supposition  that  the  balance  of  £10,000,  due  by  Glasgow,  de- 
pressed the  exchange  of  that  city  on  London  one  per  cent.,  it  would  at  first 
sight  appear  as  if  it  would  cost  Glasgow  £101,000  to  discharge  its  debt  of 
£100,000  due  to  London;  and  that,  on  the  other  hand,  £89,108  would  be 
sufficient  to  discharge  the  debt  of  London  to  Glasgow.  But  a  very  little 
consideration  will  serve  to  show  that  this  could  not  really  be  the  case.  No 
exchange  transactions  can  take  place  between  different  cities,  until  there 
be  both  debtors  and  creditors  of  the  one  residing  in  the  other.  And 
hence,  when  the  exchange  became  unfavorable  to  Glasgow,  the  premium 
paid  by  the  Glasgow  merchants,  for  bills  drawn  on  London,  would  not  go 
into  the  pockets  of  their  creditors  in  that  city,  but  into  the  pockets  of  their 
neighbors  in  Glasgow,  to  whom  London  was  indebted,  and  from  whom  the 
bills  had  been  purchased.  The  loss  to  Glasgow  would  therefore  be  limited 
to  the  premium  paid  on  the  balance  of  £10,000.  Thus,  supposing  that 
A  of  Glasgow  owes  D  of  London  £100,000,  and  that  C  of  London  owes 
B  of  Glasgow  £90,000  ;  A  will  pay  to  B  £91,000  for  a  bill  or  order  on  C 
to  pay  D  £90,000.  In  this  way,  the  £90,000  London  debt  at  Glasgow 
would  be  quite  cleared  off;  the  premium  which  is  lost  by  the  debtor  to 
London  in  Glasgow,  being  gained  by  its  creditor  in  the  same  place.  If 
the  business  had  been  transacted  in  London,  C,  with  £89,  108,  would  have 
purchased  of  D  a  bill  for  £90,000  payable  by  A,  so  that,  in  this  case,  the 
gain  would  have  fallen  to  the  debtor  C,  and  the  loss  to  the  creditor  D, 
both  of  London.  The  complexity  of  real  transactions  does  not  affect  the 
principles  on  which  they  are  founded ;  and  to  whatever  extent  Glasgow 
might  be  indebted  to  London,  or  London  to  Glasgow,  the  only  disadvan- 
tage under  which  either  of  them  would  in  consequence  be  placed,  would 
be  the  unavoidable  one  of  paying  the  expense  of  remitting  the  balance  of 
debt. 


Natural  Limit  to  Fluctuations  in  the  Exchange. 

The  expense  of  transmitting  money  from  one  place  to  another  forms  the 
natural  limit  to  fluctuations  in  the  exchange.  If  20s.  sufficed  to  cover  the 
expense  and  risk  attending  the  transmission  of  £100  from  Glasgow  to  Lon- 
don, it  would  be  indifferent  to  a  Glasgow  merchant,  whether  he  paid  one 
per  cent,  premium  for  a  bill  of  exchange  on  London  or  remitted  money  di- 
rect to  that  city.  If  the  premium  were  less  than  one  per  cent,  it  would 


Fluctuations.  25 

be  clearly  his  interest  rather  to  make  his  payments  by  means  of  bills  of 
exchange  than  by  remittances  ;  and  that  it  could  not  exceed  one  per  cent, 
is  obvious,  for  every  individual  would  rather  directly  remit  money,  than 
incur  an  unnecessary  expense,  by  purchasing  a  bill  on  London  at  a  greater 
premium  than  would  suffice  to  cover  the  expense  of  a  money  remittance. 
If,  owing  to  the  badness  of  the  roads,  to  disturbances  in  the  country,  or  to 
any  other  cause,  the  expense  of  remitting  money  from  Glasgow  to  London 
should  be  increased,  the  difference  in  the  rate  of  exchange  between  them 
might  also  proportionally  be  increased.  But  in  every  case,  the  extent  to 
which  this  difference  could  attain  would  necessarily  be  limited  by,  and  could 
not  for  any  considerable  period  exceed,  the  cost  of  making  remittances  in 
cash. 

Exchange  transactions  become  more  complex,  when  one  place,  as  is  very 
often  the  case,  discharges  its  debts  to  another  by  means  of  bills  drawn  on 
a  third  place.  Thus,  although  London  should  owe  nothing  to  Glasgow,  if 
Glasgow  be  indebted  to  London,  London  to  Manchester,  and  Manchester 
to  Glasgow,  Glasgow  would  either  wholly  or  partially  discharge  its  debt 
to  London  by  a  bill  drawn  on  Manchester.  It  would  wholly  discharge  it, 
provided  the  debt  due  to  Glasgow  in  Manchester  was  equivalent  to  the 
debt  due  by  Glasgow  to  London.  But  if  this  be  not  the  case,  Glasgow 
must  either  remit  money  to  London  to  discharge  the  balance  of  debt,  or  bills 
drawn  on  some  other  place  indebted  to  her. 

Transactions  in  inland  bills  of  exchange  are  almost  entirely  conducted  by 
bankers,  who  charge  a  certain  rate  per  cent,  for  their  trouble,  and  who,  by 
having  a  credit  in  those  places  to  which  they  are  in  the  habit  of  remitting 
bills,  are  enabled,  on  all  occasions,  to  supply  the  demands  of  their  custom- 
ers. In  Great  Britain,  London,  because  of  its  intimate  connection  with 
other  parts  of  the  country,  occasioned  partly  by  its  immense  commerce, 
partly  by  its  being  the  seat  of  government,  and  the  place  to  which  the  rev- 
enue is  remitted,  and  partly  by  its  currency  consisting  of  Bank  of  England 
paper,  for  which  the  paper  currency  of  the  countiy  banks  is  rendered  ex- 
changeable, has  become  the  great  focus  in  which  all  the  money  transactions 
of  the  empire  centre,  and  in  which  they  are  ultimately  adjusted.  In 
consequence  of  these  various  circumstances,  but  chiefly  of  the  demand  for 
bills  on  London  to  remit  revenue,  and  of  the  superior  value  of  Bank  of 
England  currency,  the  exchange  between  London  and  the  other  parts  of 
the  country  is  invariably  in  its  favor.  Bills  on  London,  drawn  in  Edinburgh 
and  Glasgow,  were  formerly  made  payable  at  forty  days'  date,  which  is 
equivalent  to  a  premium  of  about  one-half  per  cent.;  but  owing  to  the 
greater  facility  of  communication,  this  premium  is  now  reduced  to  twenty 
days'  interest,  or  to  about  one-fourth  of  one  per  cent.  Bills  for  remitting 
the  revenue  from  Scotland  are  now  drawn  at  thirty  days ;  previously  to 
1819  they  were  drawn  at  sixty  days. 

What  has  been  already  stated  is  sufficient  to  show  that,  however  well 
fitted  bills  of  exchange  may  be  for  facilitating  the  operations  of  commerce, 
and  saving  the  trouble  and  expense  attending  the  transportation  of  money, 
it  is  impossible  to  adjust  mercantile  transactions  by  their  means,  except  in 
BO  far  as  the  accounts  mutually  balance  each  other.  A  real  bill  of  ex- 
change is  merely  an  order  entitling  the  holder  to  receive  payment  of  a  debt 
previously  contracted  by  the  person  on  whom  it  is  drawn.  It  is  essential 


26  Essay  on  Exchange. 

to  the  existence  of  such  a  bill  that  an  equivalent  amount  of  debt  should 
first  be  due.  And  hence,  as  the  amount  of  the  real  bills  of  exchange 
drawn  on  any  number  of  merchants  cannot  exceed  the  amount  of  their 
debts,  if  a  greater  sum  be  owing  them  than  they  owe  to  others,  the  balance, 
it  is  obvious,  must  either  be  paid  in  money,  or  by  the  delivery  of  some 
sort  of  commodities.  If,  as  in  the  example  just  given,  Glasgow  owe 
London  £100,000,  while  London  only  owes  Glasgow  £90,000,  a  reciprocal 
transfer  of  debts  may  be  made  to  the  extent  of  £90,000.  But  the 
Glasgow  merchants  cannot  discharge  the  additional  £10,000  by  means 
of  bills  drawn  on  London;  for,  by  the  supposition,  London  only  owed 
them  £90,000,  and  they  have  already  drawn  for  its  amount.  The  balance, 
therefore,  must  be  discharged  by  an  actual  money  payment,  or  by  the 
delivery  of  some  species  of  commodity,  or  by  bills  drawn  on  some  third 
party  who  may  be  indebted  to  Glasgow. 


Fictitious  Bills  of  Exchange. 

We  do  not  mean  by  this  to  insinuate  that  there  are  no  fictitious  bills  of 
exchange,  or  bills  drawn  on  persons  who  are  not  really  indebted  to  the 
drawer,  in  the  market.  In  every  commercial  country,  bills  of  this  de- 
scription are  always  to  be  met  with ;  but  they  are  only  a  device  for  ob- 
taining loans,  and  do  not,  and  can  not,  transfer  real  debts.  A  merchant  in 
London  may  form  a  connection  with  a  merchant  in  Glasgow,  and  draw 
bills  of  exchange  upon  him,  payable  a  certain  number  of  days  after  date, 
which  the  latter  may  retire  by  selling  in  Glasgow  an  equal  amount  of  bills 
drawn  upon  his  correspondent  in  London.  The  merchants  who  purchase, 
or  the  bankers  who  discount  these  bills,  really  advance  their  value  to  the 
drawers,  who,  as  long  as  they  continue,  by  means  of  this  system  of  draw- 
ing and  redrawing,  to  provide  funds  for  their  payment,  continue  in  fact  to 
command  a  borrowed  capital  equal  to  the  amount  of  the  fictitious  paper  in 
circulation.  It  is  clear,  however,  that  the  negotiation  of  such  bills  has  no 
effect  in  the  way  of  transferring  and  settling  the  real  bona  fide  debts 
reciprocally  due  between  any  two  or  more  places.  Fictitious  bills 
mutually  balance  each  other.  Those  drawn  by  London  on  Glasgow  are 
exactly  equal  to  those  drawn  by  Glasgow  on  London,  for  the  one  set 
is  drawn  to  pay  the  other,  —  the  second  destroys  the  first,  and  the  result 
is  nothing. 

The  method  of  raising  money  by  the  discount  or  sale  of  fictitious  bills 
has  been  severely  censured  by  Dr.  Smith,  as  entailing  a  ruinous  expense 
on  those  engaged  in  it,  and  as  being  resorted  to  only  by  projectors  or  per- 
sons of  suspicious  credit.  When  fictitious  bills  are  drawn  at  two  months' 
date,  it  is  common,  in  addition  to  the  ordinary  interest  of  five  per  cent.,  to 
charge  a  commission  of  one-half  per  cent.,  which  must  be  paid  every  time 
the  bill  is  discounted,  or,  at  least,  site  times  in  the  year.  The  total  expense 
of  money  raised  in  this  way  could  not,  therefore,  supposing  the  transaction 
to  be  always  on  account  of  the  same  individual,  be  estimated  at  less  than 
eight  per  cent,  per  annum  ;  and  the  payment  of  so  high  a  rate  of  interest 
on  borrowed  capital,  in  a  country  where  the  ordinary  rate  of  mercantile 
profit  is  only  supposed  to  average  from  six  to  ten  per  cent.,  could  not  fail  to 


Foreign  Exchange.  27 

be  generally  productive  of  ruin  to  the  borrower.  It  seldom  happens,  how- 
ever, that  in  transactions  carried  on  by  means  of  fictitious  bills,  the  whole 
charge  for  commission  falls  on  one  individual.  Loans  obtained  in  this  way 
are  almost  always  on  account  of  two  or  more  persons.  Thus,  at  one  time,  a 
fictitious  bill  may  be  drawn  by  A  of  London,  on  B  of  Glasgow  ;  and,  in  this 
case,  the  Glasgow  merchant  will,  before  the  bill  becomes  due,  draw  upon 
his  London  correspondent  for  the  proceeds  of  the  bill,  including  interest 
and  commission.  At  another  time,  however,  the  transaction  will  be  on 
account  of  B  of  Glasgow,  who  will  then  have  to  pay  commission  to  his 
friend  in  London  ;  so  that  each  party  may,  on  the  whole,  as  Mr.  Thornton 
has  observed,  gain  about  as  much  as  he  pays  in  the  shape  of  commission. 

It  is  often  extremely  difficult  to  distinguish  between  a  fictitious  bill  and 
one  which  has  arisen  out  of  a  real  mercantile  transaction.  Neither  does  it 
seem  to  be  of  any  very  material  importance.  The  credit  of  the  persons 
whose  names  are  attached  to  the  bills  offered  for  discount,  is  the  only  real 
criterion  by  which  either  a  private  merchant  or  a  banker  can  judge  whether 
he  ought  to  negotiate  them.  The  circumstance  of  a  merchant  offering  consid- 
erable quantity  of  accommodation  paper  for  discount,  ought,  unquestionably, 
if  discovered,  to  excite  suspicions  as  to  his  credit.  But  unless  in  so  far  as 
the  drawing  of  fictitious  bills  may  be  held  to  be  indicative  of  overtrading, 
or  of  a  deficiency  of  capital  to  carry  on  the  business  in  which  the  party  is 
engaged,  there  does  not  appear  to  be  any  good  reason  for  refusing  to  dis- 
count them. 

These  few  observations  will,  perhaps,  suffice  to  explain  the  manner  in 
which  transactions  between  different  parts  of  the  same  country  are  settled 
by  means  of  bills  of  exchange.  They  are,  in  general,  extremely  simple. 
The  uniform  value  of  the  currency  of  a  particular  country  renders  all 
comparison  between  the  value  of  money  at  the  place  where  the  bill  is 
drawn  and  negotiated  with  its  value  where  it  is  to  be  paid,  unnecessary ; 
while  the  constant  intercourse  maintained  amongst  the  different  commercial 
cities  of  the  same  kingdom,  by  preventing  those  derangements  to  which 
the  intercourse  between  distant  and  independent  countries  is  always  sub- 
ject, prevents  those  sudden  fluctuations  which  so  frequently  occur  in  the 
market  price  of  foreign  bills  of  exchange.  We  shall  therefore  leave  this 
part  of  our  subject,  and  proceed  to  investigate  the  circumstances  which  in- 
fluence the  course  of  exchange  between  different  and  independent  countries. 


CHAPTER  II. 


FOREIGN   EXCHANGE. 


THE  price  of  foreign  bills  of  exchange  depends  entirely  on  two  circum- 
stances :  first,  on  the  value  of  the  currency  at  the  place  where  they  are  made 
payable,  compared  with  the  value  of  the  currency  at  the  place  where  they 


28  Essay  on  Exchange. 

are  drawn ;  and,  secondly,  on  the  relation  which  they  supply  of  bills  in  the 
market  bears  to  the  demand. 

If  the  real  and  nominal  value  of  the  currencies  of  the  different  nations 
having  an  intercourse  together  remained  invariable,  such  fluctuations  in  the 
price  of  bills  of  exchange  as  arise  from  the  first  of  these  circumstances 
•would  be  altogether  unknown,  but  as  the  comparative  value  of  the  pound 
sterling,  dollar,  franc,  guilder,  florin,  etc.,  is  subject  to  perpetual  variation, 
the  price  of  bills  of  exchange  must  vary  accordingly.  Such  variations, 
however,  as  proceed  from  this  cause,  affect  merely  their  nominal,  or  rather 
numerical  value.  It  is  those  only  which  arise  from  variations  in  the  supply 
and  demand  for  bills,  or,  which  is  the  same  thing,  in  the  payments  a  coun- 
try has  to  make  compared  with  those  it  has  to  receive,  that  can  be  considered 
as  real;  and  hence  the  distinctions  of  nominal,  real,  and  computed  exchange. 
The  first  depends  on  alterations  in  the  value  of  the  currencies  compared 
together ;  the  second  depends  on  the  supply  of  bills  in  the  market  compared 
with  the  demand ;  and  the  third,  or  computed  exchange,  depends  on  the 
combined  effects  of  the  other  two.  For  the  sake  of  perspicuity  we  shall 
treat  of  these  separately.  Supposing  every  country  to  be  in  possession  of 
its  proper  supply  of  bullion,  the  exchange  may  be  said  to  be  nominally 
affected  by  the  amount  of  the  difference  between  the  market  and  mint 
price  of  bullion,  and  to  be  really  affected  by  any  deviation  from  par  ex- 
ceeding or  falling  short  of  that  difference. 


NOMINAL    EXCHANGE. 

Bullion  being  everywhere  recognized  as  the  standard  currency  of  the 
commercial  world,  the  comparative,  value  of  the  currencies  of  particular 
countries  must  depend,  1st,  on  the  value  of  bullion  in  those  countries;  and, 
2dly,  on  the  quantity  of  bullion  contained  in  their  coins,  or  on  the  quantity 
of  bullion  for  which  their  paper  money,  or  other  circulating  media,  will 
exchange. 


Circumstances  which  regulate  the  Value  of  Bullion  in  different  Countries. 

I.  The  real  price  of  commodities  being  always  proportioned,  not  merely 
to  the  cost  of  their  production,  but  also  to  the  cost  of  their  conveyance 
from  where  they  have  been  produced  to  where  they  are  to  be  made  use  of, 
it  follows  that  if  the  trade  in  the  precious  metals  were  perfectly  free,  and 
if  the  commodities  produced  in  different  countries  were  nearly  all  equally 
well  fitted  for  exportation,  the  value  of  bullion  in  different  countries  would 
be  chiefly  regulated  by  their  respective  distances  from  the  mines.  Thus, 
on  the  supposition  that  neither  England  nor  Poland  had  any  other  com- 
modities except  corn  to  exchange  with  the  South  Americans  for  bullion,  it 
is  evident  that  the  precious  metals  would  possess  a  greater  value  in  Poland 
than  in  England,  because  of  the  greater  expense  of  sending  so  bulky  a 
commodity  as  corn  the  more  distant  voyage,  and  because  of  the  greater 
expense  of  conveying  the  gold  to  Poland.  If  Poland,  however,  had  sue- 


Value  of  Bullion.  29 

ceeded  in  carrying  her  manufactures  to  a  higher  pitch  of  improvement 
than  England,  her  merchants  might  be  able,  notwithstanding  the  disadvan- 
tage of  distance,  by  exporting  commodities  possessed  of  great  value  in 
small  bulk,  and  on  which  the  expense  of  freight  would  be  comparatively 
trilling,  to  sell  bullion  on  cheaper  terms  than  those  of  England.  But  if,  as 
is  actually  the  case,  the  advantages  of  skill  and  machinery  were  possessed 
by  England,  another  reason  would  be  added  to  that  derived  from  her  less 
distance  from  the  mines,  why  gold  and  silver  should  be  less  valuable  in 
England  than  in  Poland,  and  why  the  money  price  of  commodities  should 
be  higher  in  the  former.  (Ricardo,  Principles  of  Political  Economy,  etc., 
1st  ed.  p.  175.) 

Hence,  after  nations  have  attained  to  different  degrees  of  excellence  in 
manufacturing  industry,  the  value  of  bullion  in  different  countries  no 
longer  depends  entirely  on  their  distance  from  the  mines.  But,  whatever 
variations  a  different  progress  in  the  arts  may  occasion  in  the  value  of 
bullion  in  different  countries,  it  is  certain  that  it  must  always  be  less  val- 
uable in  those  into  which  it  is  imported,  than  in  those  where  it  is  produced. 
Bullion,  like  every  other  commodity,  is  exported  to  find,  not  to  destroy  its 
level.  And  unless  its  value  in  Europe  exceeded  its  value  in  America  by  a 
sum  sufficient  to  cover  the  expenses  attending  its  importation,  and  to  yield 
the  ordinary  rate  of  profit  to  the  importer,  we  should  not,  although  the 
mines  of  Mexico  and  Peru  were  infinitely  more  productive,  import  from 
them  a  single  ounce  of  bullion.  It  is  obviously  incorrect,  therefore,  to  lay 
down  as  a  general  proposition,  "  that  the  par  of  exchange  between  two 
countries  is  that  sum  of  the  currency  of  either  of  the  two,  which,  in  point 
of  intrinsic  worth,  is  precisely  equal  to  a  given  sum  of  the  other,  that  is, 
contains  precisely  an  equal  weight  of  gold  and  silver  of  the  same  fineness." 
{Bullion  Report,  p.  22,  8vo.  ed.)  For  a  given  quantity  of  gold  and  silver 
is  not  always,  as  is  here  assumed,  of  the  same  intrinsic  value  in  different 
countries.  It  may  not,  indeed,  differ  very  materially  among  nations  in  the 
immediate  vicinity  of  each  other,  and  which  are  all  destitute  of  mines. 
But  although,  to  use  a  familiar  illustration,  the  value  of  sugar  approaches 
nearly  to  a  level  in  the  great  trading  cities  of  Europe,  it  cannot  surely  be 
maintained  that  its  value  in  the  West  Indies  is  the  same  with  its  value  in 
Bourdeaux  or  Liverpool,  or  that  the  exchange  would  be  really  at  par,  if  a 
bill  which  cost  a  hundred  hogsheads  of  sugar  in  London  only  brought  a 
hundred  in  Jamaica. 

Now  this  is  precisely  the  case  with  bullion.  Though  the  value  of  gold 
and  silver,  as  compared  with  corn,  labor,  etc.,  may,  and  indeed  must,  vary 
very  considerably  among  the  different  European  nations,  these  variations 
are  only  the  necessary  result  of  their  different  progress  in  industry,  and  of 
the  different  quality  of  their  cultivated  lands,  etc.  Such  differences  of 
price  are  in  the  natural  order  of  things ;  and  bullion  has  only  found  its 
proper  level  when  a  quantity  has  been  introduced  into  those  countries  which 
excel  in  manufactures,  sufficient  to  raise  the  price  of  their  corn  and  labor. 
These  variations  have,  therefore,  no  effect  on  the  exchange.  An  ounce  of 
bullion  in  one  country,  notwithstanding  this  difference  of  price,  will,  because 
of  the  facility  of  intercourse,  be  very  near  equivalent  to  an  ounce  of  bullion 
in  another ;  and  supposing  the  trade  in  the  precious  metals  to  be  perfectly 
free,  the  exchange  will  be  at  true  par  when  bills  are  negotiated  on  this 


30  Essay  on  Exchange. 

footing.  But  when  we  compare  the  values  of  the  precious  metals  in  distant 
countries,  and  especially  in  those  where  they  are  produced,  with  those  into 
which  they  are  imported,  it  is  obvious  they  must  differ  considerably.  Gold 
and  silver,  like  iron,  coal,  etc.,  are  necessarily  cheaper  in  countries  possessed 
of  extraordinarily  productive  mines,  than  in  those  possessed  only  of  mines 
of  a  secondary  degree  of  fertility,  or  when  they  have  to  be  entirely  im- 
ported from  abroad.  And  the  exchange  between  such  places  is  not  at  true 
par,  unless  adequate  allowance  be  made  for  this  difference  of  value.  Thus, 
if,  because  of  the  expense  of  carriage,  the  value  of  bullion  in  Great  Britain 
is  five  per  cent,  greater  than  in  Rio  Janeiro,  a  hundred  ounces  of  pure  gold 
in  Rio  Janeiro,  would  not  be  worth  a  hundred  ounces  of  pure  gold  in 
London,  but  five  per  cent,  less ;  and  the  exchange  would  be  at  true  par  when 
bills  for  a  hundred  and  five  ounces  of  standard  bullion,  payable  in  Rio 
Janeiro,  sold  in  London  for  a  hundred  ounces. 

The  differences  in  the  value  of  the  precious  metals  in  different  countries 
have  not  been  confined  to  those  depending  on  their  respective  distances 
from  the  mines,  or  on  their  different  progress  in  the  arts.  The  opinion 
formerly  so  very  prevalent,  that  gold  and  silver  were  the  only  articles  that 
constituted  real  wealth,  induced  almost  every  commercial  nation  to  fetter 
and  restrict  their  exportation,  and  to  adopt  a  variety  of  measures  intended 
to  facilitate  their  importation.  But  these  regulations,  even  when  most 
rigorously  enforced,  have  been  singularly  ineffectual ;  the  great  value  and 
small  bulk  of  the  precious  metals  rendering  it  not  only  extremely  advan- 
tageous, but  also  comparatively  easy,  clandestinely  to  export  them  when- 
ever their  relative  value  declined. 

"  When,"  says  Dr.  Smith,  "  the  quantity  of  gold  and  silver  imported  into 
any  country  exceeds  the  effectual  demand,  no  vigilance  of  government  can 
prevent  their  exportation.  All  the  sanguinary  laws  of  Spain  and  Portugal 
are  not  able  to  keep  their  gold  and  silver  at  home.  The  continual  importa- 
tions from  Peru  and  Brazil  exceed  the  effectual  demand  of  those  countries 
and  sink  the  price  of  these  metals  below  their  price  in  the  neighboring 
countries.  If,  on  the  contrary,  in  any  particular  country  their  quantity 
fell  short  of  the  effectual  demand,  so  as  to  raise  their  price  above  that  of 
the  neighboring  countries,  the  government  would  have  no  occasion  to  take 
any  pains  to  import  them.  If  it  were  even  to  take  the  pains  to  prevent 
their  importation,  it  would  not  be  able  to  effect  it.  Those  metals,  when 
the  Spartans  had  got  wherewithal  to  purchase  them,  broke  through  all  the 
barriers  which  the  laws  of  Lycurgus  opposed  to  their  entrance  into 
Lacedremon.  All  the  sanguinary  laws  of  the  customs  are  not  able  to 
prevent  the  importation  of  teas  of  the  Dutch  and  Gottenburg  East  India 
Companies,  because  somewhat  cheaper  than  those  of  the  British  Company. 
A  pound  of  tea,  however,  is  about  a  hundred  times  the  bulk  of  one  of  the 
highest  prices,  1 6s.,  that  is  commonly  paid  for  it  in  silver,  and  more  than 
two  thousand  times  the  bulk  of  the  same  price  in  gold,  and  is  consequently 
just  so  many  times  more  difficult  to  smuggle."  (Wealth  of  Nations,  vol. 
ii.  p.  149.) 

But,  however  ineffectual  as  a  means  of  entirely  preventing  the  egress  of 
the  precious  metals,  the  restrictions  on  their  exportation  have  nevertheless 
contributed  to  occasion  some  slight  variations  in  their  value  in  different 
countries.  The  risk  incurred  by  the  clandestine  exporters  of  bullion  from 


Quantity  of  Bullion.  31 

Spain  is  supposed  to  be  equivalent  to  about  two  per  cent.;  or,  •which  is  the 
same  thing,  it  is  supposed  that  the  restrictions  maintain  such  an  excess  of 
gold  and  silver  in  that  country  as  to  sink  their  value  two  per  cent,  below 
their  value  in  countries  having  a  free  trade  in  bullion.  In  calculating  the 
true  par  of  exchange  between  Spain  and  other  countries,  this  circumstance 
must  be  taken  into  account.  For  to  whatever  extent  the  value  of  bullion 
in  one  country  may  be  reduced  below  its  value  in  those  with  which  it 
maintains  an  intercourse,  the  nominal  exchange  must  necessarily  be  unfa- 
vorable to  that  extent. 

All  restraints  on  the  exportation  of  the  precious  metals  were  abolished  in 
Great  Britain  in  1819.  Their  effect  for  many  years  previous  could  not  be 
estimated  at  above  one-fourth  per  cent. 

It  consequently  results,  that  whatever  occasions  a  rise  or  fall  in  the  value 
of  the  precious  metals  in  a  particular  country,  must  proportionally  affect 
its  nominal  exchange  with  other  countries.  If  more  coin,  or  convert- 
ible paper,  circulated  in  Great  Britain,  compared  with  the  business  it  has 
to  perform,  than  what  circulates  in  other  countries,  its  relative  value  would, 
in  consequence,  be  diminished.  Foreign  bills  would  sell  for  a  premium, 
the  amount  of  which  would  be  precisely  equal  to  the  excess  of  the  value 
of  the  precious  metals  in  the  foreign  market,  caused  by  their  redundancy 
in  the  home  market ;  and,  on  the  other  hand,  in  the  event  of  the  currency 
becoming  relatively  deficient,  its  value  would  be  proportionally  increased ; 
bills  drawn  on  foreign  countries  would  sell  at  a  discount,  the  amount  of 
which  would  measure  the  excess  of  the  value  of  the  currency  of  this  over 
that  of  other  countries. 


r  nf  estimating  the  Quantity  of  Bullion  contained  in  the  Coins  of  different  Countries. 

II.  In  estimating  the  quantity  of  bullion  contained  in  the  currencies 
of  different  countries,  a  particular  coin  of  one  country,  such  as  the  British 
pound  sterling,  is  selected  as  an  integer,  or  standard  of  comparison,  and  the 
proportion  between  it  and  the  coins  of  other  countries,  supposing  them  to 
be  of  their  mint  standard  weight  and  fineness,  is  ascertained  by  experiment. 
A  par  of  exchange  is  thus  established,  or  rather  it  is  ascertained  that  a 
certain  amount  of  the  standard  currency  of  a  particular  country  contains 
precisely  as  much  gold  or  silver  of  the  same  fineness,  as  is  contained  in  the 
coin  or  integer  with  which  it  has  been  compared.  This  relation,or  par,  as 
it  is  technically  termed,  is  considered  invariable;  and  allowance  is  made 
for  subsequent  variations  in  the  quantities  and  purity  of  the  bullion  con- 
tained in  the  currencies  of  countries  trading  together,  by  rating  the 
exchange  at  so  much  above  or  below  par.  In  mercantile  language,  that 
country,  by  a  comparison  with  one  or  other  of  whose  coins  the  par  of  ex- 
change has  been  established,  is  said  to  give  the  certain  for  the  uncertain, 
and  conversely.  Thus,  in  the  exchange  between  London  and  Paris,  London 
and  Hamburg,  etc.,  London  gives  the  certain,  or  the  pound  sterling,  for  an 
uncertain  or  variable  number  of  francs,  florins,  etc.  Hence,  the  higher  the 
exchange  betAvecn  any  two  countries,  the  more  is  it  in  favor  of  that  which 
gives  the  certain,  and  the  lower,  the  more  is  it  in  favor  of  that  which  gives 
the  uncertain. 


32  Essay  on  Exchange. 


Effects  of  Variations  in  the  Value  of  Metallic  Currency  on  Hie  Exchange. 

On  the  supposition,  which  is  very  near  the  truth,  that  twenty-five  francs 
contain  the  same  quantity  of  standard  bullion  as  a  pound  sterling  (twenty- 
five  francs,  twenty  centimes,  is  the  exact  par),  and  supposing  also  that  the 
value  of  bullion  is  the  same  in  both  countries,  the  exchange  between  Lon- 
don and  Paris  will  be  at  par,  when  a  bill  drawn  by  a  merchant  in  the  one 
on  his  correspondent  in  the  other  sells  at  that  rate  ;  that  is,  when  a  bill  of 
exchange  for  2,500  or  25,000  francs  payable  in  Paris,  sells  in  London  for 
£100,  or  £1000,  and  vice  versa.  It  is  but  seldom,  however,  that  the  coins 
of  any  country  correspond  exactly  with  their  mint  standard ;  unless  when 
newly  issued,  they  are  all  either  more  or  less  worn ;  and  whenever  this  is 
the  case,  an  allowance  corresponding  to  the  difference  between  the  actual 
value  of  the  coins  and  their  mint  value  must  be  made,  in  estimating  "  the 
sum  of  the  existing  currency  of  either  of  two  countries  which  contains  pre- 
cisely the  same  quantity  of  bullion  as  is  contained  in  a  given  sum  of  the  other" 
Thus,  if  the  one  pound  sterling  were  so  worn,  clipped,  rubbed,  etc.,  as  not 
to  contain  so  much  bullion  as  twenty-five  francs,  but  ten  per  cent,  less,  the 
exchange  between  London  and  Paris  would  be  at  real  par  when  it  was 
nominally  ten  per  cent,  against  London.  It  is  necessary  to  observe,  that 
it  is  here  supposed  that  the  clipped  or  degraded  money  exists  in  such  a 
degree  of  abundance  as  only  to  pass  current  at  its  bullion  value. 

If  the  quantity  of  clipped  money  were  sufficiently  limited,  it  might,  not- 
withstanding the  diminution  of  weight,  pass  current  at  its  mint  value  ;  and 
then  the  par  would  have  to  be  estimated,  not  by  its  relative  weight  to 
foreign  money,  but  by  the  mint  price  of  bullion.  This  is  a  principle  which 
must  be  constantly  kept  in  view.  And  if,  on  the  other  hand,  the  pound 
sterling  was  equal  to  its  mint  standard,  while  the  franc  was  ten  per  cent, 
less,  the  exchange  between  London  and  Paris  would  be  at  real  par  when  it 
was  nominally  ten  per  cent,  against  Paris  and  in  favor  of  London.  If  the 
currency  of  both  countries  were  equally  reduced  below  the  standard  of 
their  respective  mints,  then  it  is  obvious  there  would  be  no  variation  in  the 
real  par.  But  whenever  the  currency  of  countries  trading  together  is  de- 
preciated in  an  unequal  degree,  the  exchange  is  nominally  in  favor  of  that 
country  whose  currency  is  least  depreciated,  and  nominally  against  that 
whose  currency  is  most  depreciated. 

It  is  almost  unnecessary  to  refer  to  the  history  of  exchange,  to  show  the 
practical  operation  of  this  principle ;  and  we  shall  content  ourselves  with 
selecting  the  following,  from  an  infinite  number  of  equally  conclusive 
instances. 

In  a  pamphlet  printed  in  1604,  but  written  in  1564,  it  is  mentioned,  that 
when  Henry  VIII.  degraded  the  several  species  of  coin  then  current,  there 
began  to  be  "  some  disorder "  in  the  price  of  all  wares  and  commodities, 
which  Edward  VI.  attempted  to  remedy  by  diminishing  still  farther  the 
quantity  of  pure  silver  contained  in  each  coin ;  the  consequence  was,  that 
the  English  pound  sterling,  which  heretofore  exchanged  abroad  for  twenty-six 
Flemish  schillings,  became  worth  no  more  than  thirteen  Flemish  schillings. 
the  price  of  English  commodities  being  at  the  same  time  proportionally 
increased.  (Mr.  John  Smith's  Memoirs  of  Wool,  vol.  i.  p.  105,  8vo.  ed.) 


Relative  Values.  33 

Previously  to  the  great  recoinage  in  the  reign  of  William  III.,  silver 
being  at  that  time  a  legal  tender,  the  nominal  exchange  between  England 
and  Holland,  calculated  according  to  the  standard  of  their  respective  mints, 
was  twenty-five  per  cent,  against  England  ;  but  inasmuch  as  English  silver 
coins  were  then,  owing  to  rubbing  and  clipping,  depreciated  more  than 
twenty-five  per  cent,  below  their  mint  value,  the  real  exchange  may,  not- 
withstanding, have  been  in  favor  of  England.  The  circumstance  of  the 
nominal  exchange  having  become  favorable  to  this  country  as  soon  as  the 
new  coin  was  issued,  renders  this  conjecture  extremely  probable.  (  Wealth 
of  Nations,  vol.  ii.  p.  215.) 

Before  the  reformation  of  our  gold  coin  in  1774,  the  guinea  contained  so 
much  less  than  its  standard  weight  as  to  be  degraded  from  two  to  three  per 
cent,  when  compared  with  the  current  French  coins,  and  the  exchange  be- 
tween England  and  France  was  computed  to  be  two  or  three  per  cent. 
against  this  country.  Upon  the  reformation  of  the  gold  coin,  the  exchange 
rose  to  par.  The  Turkish  government,  in  the  course  of  the  last  forty  years, 
has  made  three  great  alterations  in  the  value  of  its  coin.  Before  these 
frauds  were  committed,  the  Turkish  piastre  contained  nearly  as  much 
silver  as  the  English  half-crown ;  and,  in  exchange,  the  par  was  estimated 
at  eight  piastres  to  the  pound  sterling.  The  consequence  of  these  repeated 
adulterations  has  been,  the  reduction  of  the  silver  in  the  piastre  to  one 
half,  and  a  fall  in  the  exchange  of  100  per  cent.;  bills  on  London  having 
been  bought  in  Turkey,  in  1803,  at  the  rate  of  sixteen  piastres  for  every 
pound  sterling.  II  est  impossible  d'indiquer  exactement  le  pair-  des  mon- 
noies  Turques.  On  voit  des  pieces  du  meme  nom,  et  frappees  la  meme 
annee,  qui  different  de  100  pour  cent,  dans  leur  valeur  intrinseque. 
(Storch,  Cours  cTEconomie  Politigue,  torn  vi.  p.  336.)  Now,  although  it  is 
not  absolutely  certain  that  these  fluctuations  in  the  nominal  exchange 
were  entirely  owing  to  the  alterations  in  the  value  of  the  coin,  because  the 
real  exchange,  or  that  which  depends  on  the  abundance  or  scarcity  of  bills 
in  the  market,  might  not  be  constant ;  yet  the  exact  correspondence  of  the 
fall  of  exchange  with  the  acknowledged  degradation  of  the  coin,  renders  it 
more  than  probable  that  it  proceeded  almost  entirely  from  that  degradation. 
( Observations  on  the  Principles  which  regulate  the  Course  of  Exchange,  by 
William  Blake,  Esq.,  p.  41.) 


Effects  of  Variations  in  the  Relative  Value  of  Gold  and  Silver  on  the  Exchange. 

When  one  country  uses  gold  as  the  standard  of  its  currency  and  another 
silver,  the  par  of  exchange  between  them  is  affected  by  every  variation  in 
the  relative  value  of  these  metals.  When  gold  rises  in  value  compared  with 
silver,  the  exchange  becomes  nominally  favorable  to  that  country  which  has 
the  gold  standard,  and  vice  versa.  And  hence,  in  estimating  the  state  of  the 
exchange  among  countries  using  different  standards,  it  is  always  neces- 
sary to  advert  to  the  comparative  values  of  the  metals  selected  for  stand- 
ards. 

"  For  example,"  to  use  the  words  of  Mr.  Mushet,  "  if  34  schillings  11 
grotes  and  £  of  Hamburg  currency  be  equal  in  value  to  a  pound  sterling,  or 
|^  of  a  guinea,  when  silver  is  at  5s.  2d.  per  oz.,  they  can  no  longer  be  so 


34  Essay  on  Exchange. 

when  silver  falls  to  5s.  Id.  or  5s.  an  oz.,  or  when  it  rises  to  5s.  3d.  or  5s. 
4d.;  because  a  pound  sterling  in  gold  being  then  worth  more  or  less  silver, 
is  also  worth  more  or  less  Hamburg  currency. 

"  To  find  the  real  par,  therefore,  we  must  ascertain  what  was  the  relative 
value  of  gold  and  silver  when  the  par  was  fixed  at  34s.  lljg.  Hamburg 
currency,  and  what  is  their  relative  value  at  the  time  we  wish  to  calcu- 
late it. 

"  For  example,  if  the  price  of  standard  gold  was  £3  17s.  10^-d.  per  oz., 
and  silver  5s.  2d.,  an  ounce  of  gold  would  then  be  worth  15.07  ounces  of 
silver,  and  twenty  of  our  standard  shillings  would  then  contain  as  much 
pure  silver  as  34s.  11  grotes  and  £  Hamburg  currency.  But  if  the  ounce 
of  gold  were  £3  17s.  lO^d.,  and  silver  5s.  (which  it  was  on  2d  January, 
1798),  the  ounce  of  gold"  would  then  be  worth  15.57  ounces  of  silver.  If 
£1  sterling  at  par,  therefore,  be  worth  15.07  ounces  of  silver,  then,  at  15.57, 
it  would  be  at  three  per  cent,  premium  ;  and  three  per  cent,  premium  on 
34s.  HJd.  is  1  schilling,  1  grote  and  •£•$,  so  that  the  par,  when  gold  is  to 
silver  as  15.57  to  1,  will  be  36  schillings,  1  grote  and  T^.  The  above  cal- 
culation will  be  more  easily  made  by  stating  as  '  15.07  :  34-1 1J  :  :  15.57  : 
36-lT'^.' "  (An  Inquiry  into  the  Effects  produced  on  the  National  Currency 
by  the  Bank  Restriction  Bill,  etc.,  by  Robert  Mushet,  Esq.;  second  edition, 
p.  94.) 

Effect  of  Seignorage  on  the  Exchange. 

As  it  is  by  their  intrinsic  worth  as  bullion  that  the  values  of  the  coins  of 
particular  countries  are  estimated  in  exchange,  two  coins  of  equal  weight 
and  purity  are  reckoned  equivalent  to  each  other,  although  the  one  should 
have  been  coined  at  the  expense  of  the  state,  and  the  other  charged  with  a 
seignorage,  or  duty  on  its  coinage.  Coins  on  which  a  seignorage  is  charged, 
may,  if  not  issued  in  excess,  pass  current  in  the  country  where  they  are 
coined,  at  a  value  so  much  higher  than  their  value  in  bullion ;  but  they  will 
not  pass  at  any  higher  value  in  other  countries. 

Previously  to  1817,  no  seignorage  had  for  a  very  long  period  been  de- 
ducted from  either  the  gold  or  silver  coins  of  Great  Britain ;  but  in  the 
great  recoinage  of  that  year,  the  value  of  silver  was  raised  from  5s.  2d.  to 
5s.  6d.  an  ounce,  or  nearly  in  the  proportion  of  63  per  cent.  The  gold 
coins,  however,  are  still  coined  free  of  expense,  and  no  variation  has  been 
made  in  their  standard.  The  British  mint  proportion  of  silver  to  gold  is 
now  as  14^^  to  1  ;  that  is,  one  ounce  of  standard  gold  bullion  is  render- 
ed exchangeable  for  141?,J807rr  ounces  of  standard  silver.  In  France,  the  mint 
proportion  of  the  two  metals  is  as  15  £  to  1 ;  a  seignorage  being  exacted  to 
nearly  ^d.  per  cent,  on  gold,  and  1£  per  cent,  on  silver. 


Effect  of  Variations  in  the  Value  of  Paper  Currency  on  the  Exchange. 

But  the  principal  source  of  fluctuations  in  the  nominal  price  of  bills  of 
exchange  is  to  be  found  in  the  varying  value  of  the  paper  currency  of 
commercial  countries.  The  disorders  which  universally  arose  in  rude  ages 
from  the  diminution  of  the  quantity  of  standard  bullion  contained  in  the 


Paper  Currency.  35 

coins  of  different  countries  are  now  reproduced  in  another  form,  and  often 
to  a  still  more  ruinous  extent,  in  the  depreciation  of  their  paper  currency. 

The  impossibility  of  retaining  a  comparatively  large  quantity  of  coin  or 
bullion,  or  of  convertible  paper,  in  a  particular  country,  effectually  limited 
the  issues  of  the  Bank  of  England  previously  to  the  Restriction  Act  of 
1797,  and  sustained  the  value  of  our  currency  on  a  par  with  that  of  other 
countries.  When  the  bank  issued  less  paper  than  was  necessary  for  this 
purpose,  the  value  of  the  currency  becoming  relatively  great,  it  became 
profitable  to  import  bullion,  and  to  send  it  to  the  mint  to  be  coined.  And,  on 
the  other  hand,  when  the  bank  issued  too  much  paper,  and  thereby  de- 
pressed its  value  relatively  to  gold,  it  became  profitable  to  demand  payment 
of  its  notes,  and  thereafter  to  export  the  specie  thus  obtained  either  in  the 
shape  of  coin  or  as  bullion.  In  this  way  the  bank  was  compelled  to  limit 
its  issues  when  excessive,  and,  consequently,  to  put  a  stop  to  the  demand 
for  gold,  by  rendering  its  paper  of  equal  value. 

Had  the  Bank  of  England,  subsequently  to  the  restriction,  issued  only 
such  quantities  of  paper  as  were  required  to  sustain  its  value  on  a  par  with 
the  value  of  gold,  the  act  of  1797  would  not  have  occasioned  •  any  real 
difference  in  our  monetary  system.  But,  after  the  bank  had  been  released 
from  the  obligation  to  pay  its  notes,  it  was  not  to  be  expected  that  it  should 
be  very  careful  about  limiting  their  number.  The  restriction  enabled  the 
directors  to  exchange  bits  of  engraved  paper,  worth  perhaps  not  more  than 
five  shillings  a  quire,  for  as  many,  or  the  value  of  as  many,  hundreds  of 
thousands  of  pounds.  And  under  such  circumstances,  the  only  thing  to  be 
wondered  at  is,  not  that  paper  money  became  depreciated,  but  that  its  value 
was  not  more  degraded,  —  that  a  still  greater  quantity  of  bank-notes  were 
not  forced  into  circulation. 

A  country  with  an  inconvertible  paper  currency,  of  which  an  undue 
quantity  has  been  issued,  is  in  the  same  situation  as  a  country  would  be  in 
were  it  possessed  of  a  redundant  gold  and  silver  currency,  and  subjected  to 
laws  prohibiting  the  melting  or  exportation  of  the  coin,  that  were  carried 
into  full  effect.  Such  a  currency  is  necessarily  confined  to  the  country 
where  it  is  issued ;  it  cannot,  when  too  abundant,  diffuse  itself  generally 
amongst  others.  The  level  of  circulation  is  destroyed ;  and  the  value  of 
the  currency  becoming  less  than  the  value  of  the  currency  of  other  coun- 
tries, the  nominal  exchange  is  rendered  proportionally  unfavorable. 

Supposing  that  nothing  but  silver  coin  of  the  standard  weight  and  purity 
(twenty-five  francs  of  which  would  exchange  for  a  pound  sterling  of  the 
British  mint  standard)  circulates  at  Paris,  and  that  the  circulating  medium 
of  London  is  composed  entirely  of  paper  only  worth  half  its  nominal  value, 
or  which  is  depreciated  100  per  cent. ;  in  that  case  the  exchange  between 
London  and  Paris  would  be  at  real  par,  when  it  was  nominally  cent,  per  cent, 
against  London.  Double  the  amount  of  such  depreciated  London  currency 
would  be  required  to  purchase  a  bill  of  exchange  on  Paris  where  the  currency 
retained  its  value,  while  half  the  former  amount  of  Parisian  currency  would 
now  sufBce  to  purchase  a  bill  payable  in  London.  A  depreciation  of  this 
sort  would  have  exactly  the  same  effects  as  an  equal  reduction  in  the  value 
of  metallic  money.  While  paper  money,  depreciated  100  per  cent.,  consti- 
tuted our  legal  currency,  a  pound  note,  instead  of  being  worth  25  francs, 
would  only  be  worth  12^ ;  and  the  nominal  or  numerical  value  of  the  bills 


36  Essay  on  Exchange. 

of  exchange  negotiated  between  this  country  and  France  would  be  regu- 
lated accordingly  ;  that  is,  a  bill  of  exchange  for  £100  or  £1000,  payable 
in  London,  would  sell  in  Paris  for  1,250  or  12,500  francs,  and  conversely. 
If,  while  the  currency  of  London  remained  steady  at  100  per  cent,  below 
its  mint  value,  Parisian  currency  should,  either  from  the  coins  becoming 
deficient  in  weight,  or  because  of  an  inordinate  issue  of  paper  money, 
become  also  depreciated,  the  nominal  exchange  would  be  rendered  propor- 
tionally less  unfavorable  to  London.  On  the  hypothesis  that  the  currency 
of  Paris  is  depreciated  50  and  that  of  London  100  per  cent.,  the  nominal 
exchange  would  be  50  per  cent,  against  the  latter,  and  so  on.  Thus  it  ap- 
pears that  the  nominal  exchange  between  any  two  or  more  places  will 
always  be  adjusted  according  to  the  value  of  their  currencies ;  being  most 
favorable  to  that  country  whose  currency  approaches  nearest  to  its  mint 
standard,  and  most  unfavorable  to  that  whose  currency  is  most  degraded. 


Exchange  between  Great  Britain  and  Ireland  subsequent  to  1797. 

The  state  of  exchange  between  Great  Britain  and  Ireland,  subsequently 
to  the  restriction  on  cash  payments  in  1797,  furnishes  a  striking  proof  of  the 
effects  which  inordinate  issues  of  paper  have  in  depressing  the  exchange. 

The  nominal  value  of  the  Irish  shilling  having  been  raised  from  12d.  to 
13d.  or,  which  is  the  same  thing,  £108  6s.  8d.  of  Irish  money  having  been 
rendered  only  equal  to  £100  British  money,  it  followed  that  when  the  ex- 
change between  Great  Britain  and  Ireland  was  at  81  per  cent,  against  the 
latter  it  was  said  to  be  at  par.  In  the  eight  years  previous  to  1797,  when 
the  paper  currency  both  of  England  and  Ireland  was  convertible  into  gold, 
the  exchange  between  London  and  Dublin  fluctuated  from  7^  to  9  per  cent.; 
that  is,  from  %  per  cent,  in  favor  of  Dublin,  to  §  per  cent,  against  it.  In 
September,  1797,  it  was  so  low  as  6  per  cent.,  or  2^  per  cent,  in  favor  of 
Dublin.  The  amount  of  Bank  of  Ireland  notes  in  circulation  in  January, 
1797,  was  only  £621,917 ;  but  in  April,  1801,  they  had  increased  to 
£2,286,471,  and  the  exchange  was  then  at  14  per  cent.,  or  5  2.  per  cent. 
against  Dublin.  In  1803,  the  Bank  of  Ireland  notes  in  circulation  averaged 
£2,707,956,  and  in  October  of  that  year,  the  exchange  rose  to  17  per  cent.; 
that  is,  to  8|  per  cent,  against  Dublin  ! 

The  fact  of  the  exchange  between  London  and  Dublin  having  fluctuated 
so  very  little  from  real  par,  for  eight  years  previous  to  the  restriction, 
shows  that  the  circulating  medium  of  Great  Britain  and  Ireland  had  then 
been  adjusted  nearly  according  to  the  wants  of  the  two  countries.  But,  in 
these  circumstances,  it  was  evidently  impossible,  supposing  the  value  of 
British  currency  to  remain  stationary,  that  the  quantity  of  Irish  bank  paper 
could  be  nearly  quintupled  in  the  short  space  of  six  years,  without  render- 
ing the  currency  of  Ireland  comparatively  redundant,  and  sinking  its  value 
below  that  of  England.  Had  the  Bank  of  England  increased  its  notes 
nearly  in  the  same  ratio  as  the  bank  of  Ireland,  then,  as  the  currency  of 
both  countries  would  have  been  equally  depreciated,  the  exchange  between 
London  and  Dublin  would  have  continued  at  par.  But  while  the  notes  of 
the  Bank  of  Ireland  were  increased  from  £621,917  to  2,707,956,  or  in  the 
proportion  of  1  to  4.3,  those  of  the  Bank  of  England  were  only  increased 


Great  Britain  and  Ireland.  37 

from  £9,181,843  (their  number  on  January  7th,  1797),  to  £16,505,272, 
or  in  the  proportion  of  1  to  1.8.  If  the  Bank  of  England  had  not  made 
this  addition  to  its  issues,  the  exchange  would  obviously  have  been  still 
more  unfavorable  to  Dublin. 

In  the  debates  on  the  Bullion  Report,  it  was  contended  that  the  increase 
of  Bank  of  Ireland  paper  could  not  be  the  cause  of  the  exchange  becoming 
unfavorable  to  Dublin,  inasmuch  as  it  had  again  become  favorable  to  the 
latter,  after  the  issues  of  the  Bank  of  Ireland  had  been  still  farther  increased. 
Nothing,  however,  can  be  more  inconclusive  than  such  reasoning.  To  give 
it  the  least  weight,  it  must  be  shown  that  the  currency  of  Great  Britain 
had  in  the  interim  retained  its  value,  or  that  it  had  not  been  depreciated  to 
the  same  extent  as  that  of  Ireland.  Unless  this  be  established,  the  cir- 
cumstance that  the  exchange  between  London  and  Dublin  came  to  par 
while  as  many  notes  of  the  Bank  of  Ireland  circulated  as  in  the  period  of 
its  greatest  depression,  will  not  authorize  us  to  conclude  that  the  increase 
of  Irish  bank  paper  was  not  the  cause  of  the  fall  in  the  exchange  previ- 
ously to  1804.  For  it  is  obvious  that  the  depreciation  of  Irish  bank  paper 
might  be  going  on  subsequently  to  1804  ;  and  yet,  supposing  English  bank 
paper  had  been  depreciated  still  more  rapidly,  the  exchange  would  become 
more  favorable  to  Dublin.  This  is  merely  supposing  the  circumstances 
which  took  place  in  the  first  six  years  of  the  restriction  to  be  reversed  in 
the  second  six.  Let  us  examine  how  the  fact  stands. 

We  have  seen  that,  in  1803,  when  the  exchange  was  nominally  ten  per 
cent,  against  Dublin,  the  issues  of  the  Bank  of  England  amounted  to 
£16,505,272,  and  those  of  the  Bank  of  Ireland  to  £2,707,956.  And  by 
referring  to  the  account  of  the  issues  of  the  Bank  of  Ireland  from  1797  to 
1819,  it  will  be  seen  that,  in  1805,  1806,  1807,  and  1808,  they  were  rather 
diminished;  and  that,  in  1810,  they  only  amounted  to  £3,251,750,  being  an 
increase  of  not  more  than  £543,794  in  the  space  of  seven  years,  or  at  the 
rate  of  two  and  six-sevenths  per  cent  per  annum ;  but  in  the  same  period 
(from  1803  to  1810),  the  issues  of  the  Bank  of  England  had  increased  from 
£16,505,272  to  £22,541,523, or  at  the  rate  of  five  per  cent,  per  annum.  But 
this  is  not  all.  According  to  Mr.  Wakefield  (Account  of  Ireland,  vol.  ii.  p. 
171),  who  has  left  no  subject  untouched  which  could  throw  light  on  the 
state  of  Ireland,  there  were  fifty  registered  bankers  in  that  country  in 
1804,  and  only  thirty-three  in  1810,  of  which  fourteen  were  new  houses, 
thirty -one  of  the  old  establishments  having  disappeared  ;  "  and  I  believe," 
says  Mr.  Wakefield,  "/or  the  most  part  failed. "  This  extraordinary  di- 
minution of  the  country  paper  of  Ireland — for  the  reduction  of  the  issues 
was  at  least  proportional  to  the  reduction  in  the  number  of  banks  —  must 
have  greatly  raised  its  value,  and  would  have  countervailed  a  very  great 
increase  in  the  issues  of  the  national  bank.  Now  the  very  reverse  of  all 
this  took  place  in  Britain.  In  1800,  there  were  386  country  banks  in  this 
country ;  and  in  1810,  this  number,  instead  of  being  diminished,  as  in 
Ireland,  had  increased  to  721,  having  at  least  three  times  the  number  of 
notes  in  circulation  in  the  latter  as  in  the  former  period. 

It  appears  therefore  that  when,  in  the  period  between  1797  and  1804,  the 
quantity  of  paper  in  circulation  in  Ireland  was  increased,  and  consequently 
its  value  depressed,  faster  than  in  England,  the  exchange  between  London 
and  Dublin  became  proportionally  unfavorable  to  the  latter ;  and,  on  the 


38  Essay  on  Exchange. 

other  hand,  it  appears  that  when,  in  the  six  years  subsequent  to  1804,  the 
paper  currency  of  England  was  increased  more  rapidly  than  the  paper 
currency  of  Ireland,  its  relative  value  was  diminished  and  the  nominal 
exchange  became  more  favorable  to  Dublin. 

This  is  sufficiently  conclusive  ;  but  there  is  still  more  decisive  evidence  to 
show  that  the  unfavorable  exchange  of  Dublin  upon  London  in  1802, 1803, 
1804,  etc.,  was  entirely  owing  to  the  comparative  redundancy  or  deprecia- 
tion of  Irish  bank  paper.  The  linen  manufacturers,  weavers,  etc.,  and  the 
majority  of  the  other  inhabitants  of  a  few  counties  in  the  north  of  Ireland, 
being  at  the  period  of  the  restriction  strongly  disaffected'  towards  govern- 
ment, almost  unanimously  refused  to  receive  bank  notes,  either  in  payment 
of  commodities  or  as  wages.  The  landlords  having  also  stipulated  for 
the  payment  of  their  rents  in  specie,  the  consequence  was,  that  a  gold  cur- 
rency was  maintained  in  the  north  of  Ireland  long  after  it  had  been  entire- 
ly banished  from  the  southern  part  of  the  island.  If,  therefore,  the  depressed 
state  of  the  exchange  between  London  and  Dublin  had  been  occasioned, 
as  was  contended  by  the  advocates  of  the  restriction,  by  an  unfavorable 
balance  of  trade  between  Ireland  and  Great  Britain,  or  by  remittances 
from  the  former  on  account  of  absentee  landlords,  etc.,  it  would  have  been 
equally  depressed  between  London  and  the  commercial  towns  in  the  north- 
ern counties.  But,  so  far  from  this  being  the  case,  in  December,  1803, 
when  the  exchange  of  Dublin  on  London  was  at  sixteen  and  one-fourth 
per  cent.,  that  of  Belfast  on  London  was  at  five  and  one-fourth  :  or,  in  other 
words,  at  the  same  time  that  the  exchange  between  Dublin  and  London 
was  about  eight  per  cent,  against  Ireland,  the  exchange  between  Belfast, 
which  had  a  gold  currency,  and  London,  was  about  three  per  cent,  in  its 
favor.  Nor  is  this  all.  There  was  not  only  a  difference  of  eleven  per  cent, 
in  the  rate  of  exchange  between  Dublin  and  London,  and  Belfast  and 
London,  but  the  inland  exchange  between  Dublin  and  Belfast  was,  at  the 
same  time,  about  ten  per  cent,  in  favor  of  the  latter  ;  that  is,  bills  drawn 
in  Dublin,  and  payable  in  the  gold  currency  of  Belfast,  brought  a  premium 
of  ten  per  cent. ;  while  bills  drawn  in  Belfast,  and  made  payable  in  the 
paper  currency  of  Dublin,  sold  at  ten  per  cent,  discount.  Further  infor- 
mation on  this  interesting  subject  may  be  obtained  from  the  very  able  Re- 
port of  the  Committee  of  the  House  of  Commons,  appointed  in  1804,  to 
inquire  into  the  state  of  the  circulating  paper  in  Ireland,  its  specie,  etc., 
and  the  state  of  the  exchange  between  it  and  Great  Britain ;  in  Sir  Henry 
Parnell's  excellent  pamphlet  on  the  same  subject ;  and  in  the  pamphlets 
of  Lord  King,  Mr.  Huskisson,  etc. 

It  is  unnecessary  to  refer  to  the  history  of  the  French  assignats,  or  of  the 
paper  currency  of  the  continental  powers  generally,  and  of  the  United 
States,  to  corroborate  what  has  been  advanced.  Such  of  our  readers  as 
wish  for  detailed  information  as  to  these  points  may  have  recourse  to  the 
fourth  volume  of  the  Cours  d' Economic,  Politique  of  M.  Storch,  where  they 
will  find  an  able  and  instructive  account  of  the  effects  produced  by  the 
issues  of  paper  on  the  price  of  bullion  and  the  exchange,  in  almost  every 
country  of  Europe.  They  are,  in  every  case,  precisely  similar  to  those 
now  stated. 

It  only  remains  to  determine  the  effects  of  fluctuations  in  the  nominal 
exchange,  on  the  export  and  import  trade  of  the  country. 


Export  and  Import  Trade.  39 


Inquiry  into  the  Effects  of  Fluctuations  in  the  Nominal  Exchange  on  Export  and  Import 

Trade. 

When  the  exchange  is  at  par,  the  operations  of  the  merchant  are  regu- 
lated entirely  by  the  difference  between  foreign  prices  and  home  prices. 
He  imports  those  commodities  which  can  be  sold  at  home  for  so  much  more 
than  their  price  abroad  as  will  indemnify  him  for  the  expense  of  freight, 
insurance,  etc.,  and  yield  an  adequate  remuneration  for  his  trouble,  and  for 
the  capital  employed  in  their  importation ;  and  he  exports  those  whose 
price  abroad  is  sufficient  to  cover  all  expenses,  and  to  afford  a  similar  profit. 
But  when  the  nominal  exchange  becomes  unfavorable  to  a  particular  coun- 
try, the  premium  which  its  merchants  receive  on  the  sale  of  foreign  bills 
has  been  supposed  capable  of  enabling  them  to  export  with  profit  in  cases 
where  the  difference  between  the  price  of  the  exported  commodities  at 
home  and  abroad  might  not  be  such  as  would  have  permitted  their  expor- 
tation had  the  exchange  been  at  par.  Thus,  if  the  nominal  exchange  were 
ten  per  cent,  against  this  country,  a  merchant  who  had  consigned  goods  to 
his  agent  abroad  would  receive  a  premium  of  ten  per  cent,  on  the  sale  of 
the  bill ;  and  if  we  suppose  freight,  insurance,  mercantile  profit,  etc.,  to 
amount  to  six  or  seven  per  cent.,  it  would  at  first  sight  appear  as  if  our 
merchants  might,  in  such  circumstances,  export  commodities  although  their 
price  at  home  were  three  or  four  per  cent  higher  than  in  other  countries. 
If,  on  the  other  hand,  the  nominal  exchange  were  in  our  favor,  or  if  bills 
on  this  country  sold  at  a  premium,  it  would  appear  as  if  foreigners  would 
then  be  able  to  consign  goods  to  our  merchants,  or  our  merchants  to  order 
goods  from  abroad,  when  the  difference  of  real  prices  was  not  such  as 
would  of  itself  have  led  to  an  importation. 

But  a  very  little  consideration  will  convince  us  that  fluctuations  in  the 
nominal  exchange  can  have  no  such  effect.  That  fall  in  the  value  of  the 
currency  which  renders  the  exchange  unfavorable,  and  causes  foreign  bills 
to  sell  at  a  premium,  must  equally  increase  the  price  of  all  commodities. 
And  hence,  whatever  might  be  the  amount  of  the  premium  which  the  ex- 
porter gained  by  the  sale  of  the  bill  drawn  on  his  correspondent  abroad,  it 
would  do  no  more  than  indemnify  him  for  the  enhanced  price  of  the  goods 
exported.  Mercantile  operations  are  in  such  cases  conducted  precisely  as 
they  would  be  were  the  exchange  really  at  par;  that  is,  by  a  comparison 
of  the  real  prices  of  commodities  at  home  and  abroad  ;  meaning,  by  real 
prices,  the  prices  at  which  they  would  be  sold,  provided  there  were  no  de- 
preciation of  -the  currency.  If  those  prices  be  such  as  to  admit  of  expor- 
tation or  importation  with  a  profit,  the  circumstance  of  the  nominal 
exchange  being  favorable  or  unfavorable  will  make  no  difference  whatever 
on  the  transaction. 

"  Suppose,"  says  Mr.  Blake,  who  has  very  successfully  illustrated  this 
part  of  the  doctrine  of  exchange,  "  the  currencies  of  Hamburg  and  London 
being  in  their  due  proportions,  and  therefore  the  nominal  exchange  at  par, 
that  sugar,  which,  from  its  abundance  in  London,  sold  at  £50  per  hogshead, 
from  its  scarcity  at  Hamburg  would  sell  at  £100.  The  merchant  in  this 
case  would  immediately  export.  Upon  the  sale  of  his  sugar,  he  would  draw 
a  bill  upon  his  correspondent  abroad  for  £100,  which  he  could  at  once  convert 


40  Essay  on  Exchange. 

into  cash  by  selling  it  in  the  bill  market  at  home,  deriving  from  this  trans- 
action a  profit  of  £50,  under  deduction  of  the  expenses  of  freight,  insurance, 
commission,  etc.  Now,  supposing  no  alteration  in  the  scarcity  or  abun- 
dance of  sugar  in  London  and  Hamburg,  and  that  the  same  transaction  were 
to  take  place  after  the  currency  in  England  had  been  so  much  increased 
that  the  prices  were  doubled,  and,  consequently,  the  nominal  exchange  100 
per  cent,  in  favor  of  Hamburg,  the  hogshead  of  sugar  would  then  cost 
£100,  leaving  apparently  no  profit  whatever  to  the  exporter.  He  would, 
however,  as  before,  draw  his  bill  on  his  correspondent  for  £100  ;  and,  as 
foreign  bills  would  bear  a  premium  of  100  per  cent,  he  would  sell  this  bill 
in  the  English  market  for  £200,  and"  thus  derive  a  profit  from  the  trans- 
action of  £100  depreciated,  or  £50  estimated  in  undepreciated  currency, 
deducting,  as  in  the  former  instance,  the  expense  of  freight,  insurance, 
commission,  etc. 

"The  case  would  be  precisely  similar,  mutatis  mutandis,  with  the 
importing  merchant.  The  unfavorable  nominal  exchange  would  appear  to 
occasion  a  loss  amounting  to  the  premium  on  the  foreign  bill  which  he  must 
give  in  order  to  pay  his  correspondent  abroad.  But  if  the  difference  of 
real  prices  in  the  home  and  foreign  markets  were  such  as  to  admit  of  a 
profit  upon  the  importation  of  produce,  the  merchant  would  continue  to 
import,  notwithstanding  the  premium  ;  for  that  would  be  repaid  to  him  in 
the  advanced  nominal  price  at  which  the  imported  produce  would  be  sold 
in  the  home  market. 

"  Suppose,  for  instance,  the  currencies  of  Hamburg  and  London  being  in 
their  due  proportions,  and  therefore  the  nominal  exchange  at  par,  that 
linen  which  can  be  bought  at  Hamburg  for  £50  will  sell  here  at  £100. 
The  importer  immediately  orders  his  correspondent  abroad  to  send  the 
linen,  for  the  payment  of  which  he  purchases  at  £50  a  foreign  bill  in  the 
English  market,  and  on  the  sale  of  the  consignment  for  £100  he  will  derive 
a  profit  amounting  to  the  difference  between  £50  and  the  expense  attend- 
ing the  import. 

"  Now,  suppose  the  same  transaction  to  take  place  without  any  alteration 
in  the  scarcity  or  abundance  of  linen  at  Hamburg  and  London,  but  that 
the  currency  of  England  has  been  so  augmented  as  to  be  depreciated  to 
half  its  value;  the  nominal  exchange  will  then  be  100  per  cent,  against 
England,  and  the  importer  will  not  be  able  to  purchase  a  £50  foreign  bill 
for  less  than  £100.  But  as  the  prices  of  commodities  here  will  have  risen 
in  the  same  proportion  as  the  money  has  been  depreciated,  he  will  sell  his 
linen  to  the  English  consumer  for  £200,  and  will,  as  before,  derive  a  profit 
amounting  to  the  difference  between  £100  depreciated,  or  £50  estimated  in 
undepreciated  money,  and  the  expenses  attending  the  import. 

u  The  same  instances  might  be  put  in  the  case  of  a  favorable  exchange  ; 
and  it  would  be  seen  in  the  same  manner  that  nominal  prices  and  the 
nominal  exchange  being  alike  dependent  on  the  depreciation  of  currency, 
whatever  apparent  advantage  might  be  derived  from  the  former  would  be 
counterbalanced  by  a  loss  on  the  latter,  and  vice  versa"  ( Observations,  etc-, 
p.  48.) 

It  appears,  therefore,  that  fluctuations  in  the  nominal  exchange  have  no 
effect  on  export  or  import  trade.  A  fall  in  the  exchange,  obliges  the  coun- 
try to  which  it  is  unfavorable  to  expend  a  larger  nominal  sum  in  discharg- 


Effect  of  Fluctuations.  41 

ing  a  foreign  debt  than  would  otherwise  be  necessary  ;  but  does  not  oblige 
it  to  expend  a  greater  real  value.  The  depression  of  the  nominal  exchange 
can  neither  exceed  nor  fall  short  of  the  comparative  depreciation  of  the  cur- 
rency. If  the  depreciation  of  British  currency  amounted  to  10  or  100  per 
cent,  the  nominal  exchange  would  be  10  or  100  per  cent,  against  us  ;  and 
we  should  be  compelled,  in  all  our  transactions  with  foreigners,  to  give 
them  22s.  or  40s.  for  what  might  otherwise  have  been  procured  for  £1.  But 
as  neither  22s.  nor  40s.  of  paper,  depreciated  to  the  extent  of  10  or  100 
percent.,  would  be  more  valuable  than  £1  of  undepreciated  paper,  payment 
of  a  foreign  debt  might,  it  is  evident,  be  as  easily  made  in  the  one  currency 
as  in  the  other ;  and  mercantile  transactions  would,  in  such  circumstances, 
be  conducted  exactly  as  they  would  have  been  had  the  currency  been  un- 
depreciated and  the  nominal  exchange  at  par. 

It  is  necessary,  however,  before  dismissing  this  part  of  our  subject,  to 
examine  the  effects  of  fluctuations  in  the  nominal  exchange  on  the  importa- 
tion and  exportation  of  bullion.  In  certain  cases  they  form  an  exception 
to  the  general  principle  we  have  been  endeavoring  to  elucidate. 


Effects  of  Fluctuations  in  the  Nominal  Exchange  on  the  Trade  in  Bullion. 

If  the  nominal  exchange  were  unfavorable  to  a  country  which  had  en- 
tirely discarded  the  precious  metals  from  its  circulation,  Mr.  Blake's  opinion 
that  the  fall  of  the  exchange  has  no  effect  on  the  export  and  import  of 
bullion,  more  than  of  any  other  commodity,  would  be  perfectly  well  founded. 
In  this  case,  the  price  of  all  sorts  of  commodities,  and  of  bullion  among  the 
rest,  would  be  increased  precisely  according  to  the  depreciation  of  the 
currency  ;  and  the  merchants  who  should,  under  such  circumstances,  attempt 
to  export  bullion,  would  find  that  its  increased  price  in  the  home  market 
would  be  exactly  equivalent  to  whatever  premium  they  might  gain  by  the 
sale  of  the  bills  drawn  on  their  agents  abroad  for  its  price.  But  when  the 
nominal  exchange  becomes  unfavorable  to  a  country  whose  currency  con- 
sists entirely  of  the  precious  metals,  or  partly  of  them  and  partly  of  paper, 
a  different  effect  is  produced. 

In  this  case,  the  depreciation  necessarily  adds  to  the  stock  of  bullion  in 
the  country.  For  as  soon  as  the  currency  has  been  depreciated  to  such  an 
extent  as  to  render  the  excess  of  the  market  above  the  mint  price  of  bullion 
sufficient  to  cover  the  very  trifling  expenses  attending  the  melting  of  the 
coin,  and  to  afford  some  little  remuneration  for  the  trouble  of  the  melters, 
they  immediately  set  about  converting  it  into  bullion.  If,  indeed,  it  were 
possible  to  realize  a  greater  profit  by  the  exportation  than  by  the  fusion  of 
the  coins,  they  would  not  be  converted  into  bullion,  and,  of  course,  its  real 
price  would  continue  stationary.  But  this  is  very  seldom  the  case.  The 
operation  of  melting  is  so  extremely  simple,  and  requires  so  very  little  ap- 
paratus, that  it  may,  in  almost  every  instance,  be  earned  on  at  a  less  ex- 
pense than  would  be  necessary  to  export  the  coins.  The  cost  attending  the 
conveyance  of  gold  to  Paris  varies,  in  a  season  of  peace,  from  one  to  two 
per  cent. ;  while  a  profit  of  one-fourth  or  one-half  per  cent,  is  sufficient  to 
indemnify  the  melters  of  guineas  or  sovereigns. 

It  is  obvious,  therefore,  that  of  the  two  modes  of  restoring  the  value  of 


42  Essay  on  Exchange. 

the  currency  when  it  becomes  depreciated  or  relatively  redundant,  that  of 
fusion  will  be  generally  resorted  to  in  preference  to  exportation.  Should 
the  redundancy  of  the  currency  be  inconsiderable,  all  the  addition  which  the 
operations  of  the  melters  could  make  to  the  supply  of  bullion,  would  most 
probably  be  insufficient  to  occasion  any  perceptible  fall  in  its  real  price. 
But,  in  every  case  in  which  the  redundancy  or  depreciation  of  the  currency 
is  considerable,  the  fusion  of  the  coined  money  never  fails  to  increase  the 
quantity  of  bullion  beyond  the  effectual  demand,  and,  consequently,  to  oc- 
casion a  fall  in  its  real  price,  and  to  render  it  a  profitable  article  of  export. 
The  demand  for  bullion,  though  it  must  always  vary  with  the  varying  wealth 
and  riches  of  the  community,  fluctuates  very  little  in  periods  of  limited  dura- 
tion ;  and  no  considerable  addition  can  ever  be  made  to  the  stock  on  hand 
in  a  particular  country,  without  sinking  its  value  and  causing  its  egress. 

Mr.  Blake  contends  that  this  exportation  of  bullion  is  the  effect  of  the 
melting  of  the  coin,  and  not  the  cause  of  it ;  and  in  so  far  he  is  certainly 
right.  But  we  do  not  see  how  this  in  the  least  strengthens  his  opinion, 
that  fluctuations  in  the  nominal  exchange,  even  in  those  cases  in  which  the 
currency  consists  either  wholly  or  partially  of  the  precious  metals,  have  no 
influence  on  the  export  and  import  of  bullion.  Surely,  it  is  impossible  to 
deny  that  the  fusion  of  the  coin,  of  which  Mr.  Blake  admits  the  exportation 
of  bullion  is  a  necessary  consequence,  is  occasioned  by  redundancy  of  the 
currency,  or  by  the  same  cause  which  occasions  an  unfavorable  nominal 
exchange. 

Bullion,  therefore,  forms  an  exception,  and  it  is  the  only  one,  to  the 
general  principle  that  a  fall  in  the  value  of  the  currency,  or  an  unfavorable 
nominal  exchange,  has  no  effect  on  importation  or  exportation.  But  this 
exception  does  not  take  place  except  in  those  cases  in  which  the  currency 
consists  either  in  whole  or  in  part  of  the  precious  metals.  When  the  cur- 
rency consists  entirely  of  paper,  or  of  any  commodity  other  than  gold  or 
silver,  its  depreciation  has  no  influence  whatever  on  the  importation  of 
bullion. 


CHAPTER  HI. 


REAL   EXCHANGE. 

HAVING  thus  endeavored  to  trace  the  effects  which  variations  in  the  value 
of  the  currencies  of  countries  maintaining  an  intercourse  together  have  on 
the  exchange,  we  now  proceed  to  consider  how  far  it  is  influenced  by  fluc- 
tuations in  the  supply  and  demand  for  bills.  To  facilitate  this  inquiry,  we 
shall  exclude  all  consideration  of  changes  in  the  value  of  money ;  or,  which 
is  the  same  thing,  we  shall  suppose  the  currencies  of  the  different  coun- 
tries having  an  intercourse  together  to  be  all  fixed  at  their  mint  standards, 
and  that  each  has  its  proper  supply  of  bullion. 

When  two  nations  trade'  together,  and  each  purchases  from  the  other 


Balance  of  Payments.  43 

commodities  of  precisely  the  same  value,  their  debts  and  credits  will  be 
equal,  and  of  course  the  real  exchange  will  be  at  par.  The  bills  drawn 
by  the  one  are,  in  such  a  case,  exactly  equivalent  to  those  drawn  by  the 
other,  and  their  respective  claims  may  be  adjusted  without  the  transfer  of 
bullion,  or  other  valuable  produce.  But  it  very  rarely  happens  that  the  debts 
reciprocally  due  by  any  two  countries  are  equal.  There  is  almost  always 
a  balance  owing  on  one  side  or  other ;  and  this  balance  must  affect  the 
exchange.  If  the  debts  due  by  London  to  Paris  exceeded  those  due  by 
Paris  to  London,  the  competition  in  the  London  market  for  bills  on  Paris 
would,  because  of  the  comparatively  large  sum  which  our  merchants  had 
to  remit  to  France,  be  greater  than  the  competition  in  Paris  for  bills  on 
London  ;  and,  consequently,  the  real  exchange  would  be  in  favor  of  Paris 
and  against  London. 

Limit  to  Fluctuations  in  the  Real  Exchange. 

The  expense  of  the  transfer  of  bullion  from  one  country  to  another  con- 
stitutes the  limit  within  which  the  rise  and  fall  of  the  real  exchange  be- 
tween them  must  be  confined.  In  this  respect,  as  in  most  others,  transactions 
between  foreign  countries  are  regulated  by  the  very  same  principles  which 
regulate  those  between  different  parts  of  the  same  country.  We  have 
already  shown  how  the  fluctuations  in  the  real  exchange  between  London 
and  Glasgow  could  never  exceed  the  expense  of  transmitting  money  be- 
tween those  cities.  The  same  principle  holds  universally.  Whatever  may 
be  the  expense  of  transmitting  bullion  —  the  money  of  the  commercial 
world  —  between  London  and  Paris,  Hamburg,  New  York,  etc.,  it  is  im- 
possible that  the  real  exchange  of  the  one  on  the  other  should,  for  any 
considerable  period,  be  depressed  to  a  greater  extent.  For  a  merchant 
will  not  pay  a  greater  premium  for  a  bill  to  discharge  a  debt  abroad,  than 
would  suffice  to  cover  the  expense  of  transmitting  bullion  to  his  creditor. 

Hence  it  appears  that  whatever  has  a  tendency  to  obstruct  or  fetter  the 
intercourse  among  different  countries,  must  also  tend  to  widen  the  limits 
within  which  fluctuations  in  the  real  exchange  may  extend.  This  enables 
us  to  account  for  its  varying  so  much  more  in  time  of  war  than  in  time  of 
peace.  The  amount  of  the  bills  drawn  on  a  country  engaged  in  hostilities 
is,  from  various  causes  which  we  shall  afterwards  notice,  liable  to  be  sud- 
denly increased,  though  it  is  certain  that  whatever  may  be  the  amount  of 
the  bills  thus  thrown  upon  the  market,  the  depression  of  the  exchange  can- 
not, for  any  length  of  time,  exceed  the  expense  of  conveying  bullion  from 
the  debtor  to  the  creditor  country.  But  during  war  this  expense  is  in- 
creased ;  the  charges  on  account  of  freight,  insurance,  etc.,  being  then 
necessarily  augmented.  It  appears  from  the  evidence  annexed  to  the 
Report  of  the  Bullion  Committee,  that  the  expense  of  conveying  gold  from 
London  to  Hamburg,  which,  prior  to  the  war,  only  amounted  to  two  or  two 
and  a  half  per  cent.,  had,  in  the  latter  part  of  1809,  increased  to  about 
seven  per  cent. ;  showing  that  the  limits  within  which  fluctuations  in  the 
real  exchange  were  confined  in  1809,  were  about  three  times  as  great  as 
those  within  which  they  were  confined  in  1793. 

This  principle  also  enables  us  to  account  for  the  greater  steadiness  of  the 
real  exchange  between  countries  in  the  immediate  vicinity  of  each  other. 


44  Essay  on  Exchange. 

The  expense  of  transmitting  a  given  quantity  of  bullion  from  London  to 
Dublin  or  Paris,  is  much  less  than  the  expense  of  transmitting  the  same 
quantity  from  London  to  New  York  or  Petersburg.  And  as  fluctuations 
in  the  real  exchange  can  only  be  limited  by  the  cost  of  transmitting  bullion, 
they  may  consequently  extend  much  farther  between  distant  places  than 
between  those  that  are  contiguous. 

Inquhy  into  the  Circumstances  which  give  rise  to  a  favorable  or  an  unfavorable  Balance 

of  Payments. 

It  will  now  be  proper  to  investigate  the  circumstances  which  give  rise  to 
a  favorable  or  an  unfavorable  balance  of  payments,  and  to  appreciate  their 
effects  on  the  real  exchange,  and  on  the  trade  of  the  country  in  general. 
As  this  is  one  of  the  most  important  inquiries  in  the  whole  science  of  polit- 
ical economy,  it  will  require  to  be  discussed  at  some  length. 


The  Fact  that  the  Value  of  the  Imports  exceeds   that   of  the  Exports  does   not   warrant 
the  Conclusion  that  the  Balance  of  Payments  is  unfavorable. 

A  very  great,  if  not  the  principal,  source  of  the  errors  into  which  practi- 
cal merchants,  and  the  majority  of  writers  on  the  subject  of  exchange, 
have  been  betrayed,  appears  to  have  originated  in  their  confounding  the 
sum  which  imported  commodities  are  worth  in  the  home  market,  with  the 
sum  which  they  cost  in  the  foreign  market.  It  is  obviously,  however,  by 
the  amount  of  the  latter  only,  that  the  balance  of  payments,  and  conse- 
quently the  real  exchange,  is  influenced.  A  cargo  of  iron,  for  example, 
which  cost  £1000  free  on  board  at  Gottenburg,  might  be  worth  £1200  or 
£1300  when  imported  into  England  ;  but  the  foreign  merchant  would  not 
be  entitled  to  draw  on  London  for  more  than  its  original  cost,  or  £1000.  It 
is  clear,  therefore,  on  the  slightest  consideration,  that  the  circumstance  of 
the  value  of  the  imports  exceeding  the  value  of  the  exports,  does  not  au- 
thorize the  conclusion  that  the  balance  of  payments  is  unfavorable.  A 
favorable  or  an  unfavorable  balance  depends  entirely  on  the  sum  due  to 
foreigners  for  commodities  imported  from  abroad  being  less  or  more  than 
the  sum  due  by  them  for  the  commodities  they  have  purchased  ;  but  it  has 
nothing  to  do  with  the  prices  eventually  obtained  for  the  imported  or  ex- 
ported commodities. 

The  great  object  of  the  mercantile  system  of  commercial  policy,  a  sys- 
tem which  still  continues  to  preserve  a  considerable  influence  in  this  and 
in  every  other  country  in  Europe,  is  the  creation  of  a  favorable  balance 
of  payments,  and  consequently  of  a  favorable  real  exchange,  by  facilitating 
exportation  and  restricting  importation.  It  is  foreign  to  the  object  of  this 
article  to  enter  into  any  examination  of  the  principles  of  this  system,  except 
in  so  far  as  they  are  connected  with  the  subject  of  exchange  ;  but  we  hope 
to  be  able  to  show,  in  opposition  to  the  commonly  received  opinions  on  the 
subject,  that,  under  ordinary  circumstances,  the  value  of  the  imports  must 
always  exceed  the  value  of  the  exports ;  and  that  this  excess  of  importa- 
tion has  not,  speaking  generally,  any  tendency  to  render  the  real  exchange 
unfavorable. 


Value  of  Exports.  45 

In  Countries  carrying  on  an  Advantageous  Commerce,  the  Value  of  the  Imports  must  always 
exceed  the  Value  of  the  Exports. 

It  is .  the  business  of  the  merchant  to  carry  the  various  products  of  the 
different  countries  of  the  world  from  those  places  where  their  value  is  least 
to  those  where  it  is  greatest ;  or,  which  is  the  same  thing,  to  distribute  them 
according  to  the  effective  demand.  It  is  clear,  however,  that  there  could 
be  no  motive  to  export  any  commodity,  unless  the  commodity  which  it  was 
designed  to  import  in  its  stead  was  of  greater  value.  When  an  English 
merchant  orders  a  quantity  of  Polish  wheat,  he  calculates  on  its  selling  for 
so  much  more  than  its  price  in  Poland  as  will  be  sufficient  to  pay  the  ex- 
pense of  freight,  insurance,  etc ;  and  to  yield,  besides,  the  common  and  or- 
dinary rate  of  profit  on  the  capital  employed  in  the  business.  If  the  wheat 
did  not  sell  for  this  sum,  its  importation  would  obviously  occasion  a  loss  to 
the  importer.  No  merchant  ever  did  or  ever  will  export,  but  in  the  view 
of  importing  a  greater  value  in  return.  And  so  far  from  an  excess  of  ex- 
ports over  imports  being  any  criterion  of  an  advantageous  commerce,  it  is 
quite  the  reverse ;  and  the  truth  is,  notwithstanding  all  that  has  been  said 
and  written  to  the  contrary,  that,  unless  the  value  of  the  imports  exceeded 
that  of  the  exports,  foreign  trade  could  not  be  carried  on.  Were  this  not 
the  case,  —  were  the  value  of  the  exports  always  greater  than  the  value 
of  the  imports,  merchants  would  lose  on  every  transaction  with  foreigners, 
and  the  trade  with  them  would  either  not  exist  at  all,  or,  if  begun,  would 
be  speedily  relinquished. 

In  England,  the  rates  at  which  exports  and  imports  are  valued  were  fixed 
so  far  back  as  1696.  But  the  very  great  alteration  that  has  since  taken 
place,  not  in  the  value  of  money  only,  but  in  the  cost  of  most  part  of  the 
commodities  produced  in  this  and  other  countries,  has  rendered  this  official 
valuation,  though  valuable  as  a  means  of  determining  their  quantity,  of  no 
use  whatever  as  a  criterion  of  the  true  value  of  the  imports  and  exports. 
To  obviate  this  defect,  an  account  of  the  real  or  declared  value  of  the 
exports  is  annually  prepared  from  the  declarations  of  the  masters,  and  laid 
before  parliament.  There  is,  however,  no  such  account  of  the  imports ; 
and,  owing  to  the  difficulties  which  high  duties  throw  in  the  way,  it  is 
perhaps  impossible  to  frame  one  with  anything  like  accuracy.  It  has  also 
been  alleged,  and  apparently  with  some  foundation,  that  merchants  have  not 
unfreqnently  exaggerated  the  value  of  articles  entitled  to  drawbacks  on 
exportation  :  but  the  recent  extension  and  improvement  of  the  warehous- 
ing system,  and  the  decrease  in  the  number  of  drawbacks,  must  materially 
lessen  whatever  fraud  or  inaccuracy  may  have  arisen  from  that  source.  • 
Iii'lced,  as  most  articles  are  charged  with  an  ad  valorem  duty  of  10s.  pet- 
cent,  on  exportation,  the  fair  presumption  is,  that  their  value  will  be 
underrated.  We  believe,  however,  that  the  declared  value  of  the  ex- 
ports comes  pretty  near  the  truth,  at  least  sufficiently  so  for  all  practical 
purposes. 

But  if  perfectly  accurate  accounts  could  be  obtained  of  the  value  of  the 
exports  and  imports,  there  can  be  no  manner  of  doubt  that  in  ordinary 
years  the  latter  would  always  exceed  the  former.  The  value  of  an  ex- 
ported commodity  is  estimated  when  it  is  shipped,  before  its  value  is 
increased  by  the  expense  incurred  in  transporting  it  to  the  place  of  its 


46  Essay  on  Exchange. 

destination ;  but  the  value  of  the  commodity  imported  in  its  stead  is  esti- 
mated after  it  has  arrived  at  its  destination,  and,  consequently,  after  it  has 
been  enhanced  by  the  cost  of  freight,  insurance,  importer's  profit,  etc. 

It  is  of  very  little  importance,  in  so  far  at  least  as  the  interests  of  com- 
merce are  concerned,  whether  a  nation  act  as  the  carrier  of  its  own 
imports  and  exports,  or  employ  others.  A  carrying  nation  appears  to 
derive  a  comparatively  large  profit  from  its  commercial  transactions  ;  but 
this  excess  of  profit  is  nothing  more  than  a  fair  remuneration  for  the  cap- 
ital it  employs,  and  the  risk  it  incurs,  in  transporting  commodities  from 
one  country  to  another.  Were  the  whole  trade  between  this  country  and 
France  carried  on  in  British  bottoms,  our  merchants,  in  addition  to  the 
value  of  the  goods  exported,  would  also  receive  the  cost  of  their  carriage 
to  France.  This,  however,  would  not  occasion  any  loss  to  that  country. 
The  French  merchants  must  pay  the  freight  of  the  commodities  they 
import;  and  if  the  English  can  afford  it  on  cheaper  terms  than  their 
own  countrymen,  there  is  no  good  commercial  reason,  though  there  may 
be  others  of  a  different  kind,  why  they  should  not  employ  them  in  pref- 
erence. 

In  the  United  States,  the  value  of  the  imports,  as  ascertained  by  the 
custom-house  returns,  always  exceeds  the  value  of  the  exports.  And 
although  our  practical  politicians  have  been  in  the  habit  of  considering  the 
excess  of  exports  over  imports  as  the  only  sure  criterion  of  an  advantage- 
ous commerce,  "  it  is  nevertheless  true,  that  the  real  gain  of  the  United 
States  has  been  nearly  in  proportion  as  their  imports  have  exceeded  their 
exports."  Pitkin  on  the  Commerce  of  the  United  States,  2d  ed.  p.  280. 
The  great  excess  of  American  imports  has  been  in  part  occasioned  by  the 
Americans  generally  exporting  their  own  surplus  produce,  and  consequently 
receiving  from  foreigners,  not  only  an  equivalent  for  their  exports,  but 
also  for  the  cost  of  conveying  them  to  the  foreign  market. 

"In  1811,"  says  the  author  just  quoted,  "flour  sold  in  America  for  nine 
dollars  fifty  cents  per  barrel,  and  in  Spain  for  fifteen  dollars.  The  value 
of  the  cargo  of  a  vessel  carrying  5000  barrels  of  flour,  would  therefore 
be  estimated,  at  the  period  of  its  exportation,  at  47,500  dollars  ;  but  as  this 
flour,  would,  because  of  freight,  insurance,  exporter's  profits,  etc.,  sell  in 
Spain  for  75,000  dollars,  the  American  merchant  would  be  entitled  to  draw 
on  his  agent  in  Spain  for  27,500  dollars  more  than  the  flour  cost  in  Amer- 
ica, or  than  the  sum  for  which  he  could  have  drawn,  had  the  flour  been 
exported  on  account  of  a  Spanish  merchant.  But  the  transaction  would  not 
end  here :  the  75,000  dollars  would  be  vested  in  some  species  of  Spanish  or 
•other  European  goods  fit  for  the  American  market ;  and  the  freight,  insur- 
ance, etc.,  on  account  of  the  return  cargo  would  perhaps  increase  its  value 
to  100,000  dollars  ;  so  that  in  all,  the  American  merchant  might  have  im- 
ported commodities  worth  52,500  dollars  more  than  the  flour  originally 
sent  to  Spain."  It  is  as  impossible  to  deny  that  such  a  transaction  as  this 
is  advantageous,  as  it  is  to  deny  that  its  advantage  consists  entirely  in  the 
excess  of  the  value  of  the  goods  imported  over  the  value  of  those  exported. 
And  it  is  equally  clear  that  America  might  have  had  the  balance  of  pay- 
ments in  her  favor,  though  such  transactions  as  the  above  had  been  multi- 
plied to  any  conceivable  extent. 

Instead,  therefore,  of  endeavoring  to  fetter  and  restrict  the  trade  with 


Excess  of  Imports.  47 

those  countries  from  which  we  should  otherwise  import  a  greater  value 
than  we  exported,  we  ought  to  give  it  every  possible  facility.  Every  man 
considers  that  market  as  the  best  in  which  he  is  able  to  obtain  the  highest 
price,  or  the  greatest  value  in  exchange,  for  his  goods  ;  why  then  should  he 
be  excluded  from  it  ?  Why  compel  a  merchant  to  dispose  of  a  cargo  of 
muslin  for  £10,000  rather  than  £12,000  ?  The  wealth  of  a  state  is  made 
up  of  the  wealth  of  individuals  ;  and  we  have  yet  to  learn  that  any  more 
effectual  method  of  increasing  individual  wealth  can  be  devised,  than  to 
permit  every  person  to  make  his  purchases  in  the  cheapest,  and  his  sales 
in  the  dearest,  market. 


Erroneous  Notions  relative  to  the  Balance  of  Trade  have  been  the  Cause  of  the  Restric- 
tions which  have  annihilated  the  Trade  with  France. 

It  would  be  difficult  to  estimate  the  mischief  which  absurd  notions  rela- 
tive to  the  balance  of  trade  have  occasioned  in  almost  every  commercial 
country.  In  Great  Britain,  they  have  been  particularly  injurious.  It  is 
principally  to  the  prevalence  of  prejudices  to  which  they  have  given  rise, 
that  the  restrictions  imposed  on  the  trade  between  this  country  and  France 
are  to  be  ascribed.  The  great,  and  indeed  the  only  argument  insisted  on 
by  those  who  prevailed  on  the  legislature  to  declare  the  trade  with  France 
a  nuisance  (Prohibition  Act,  1st  William  and  Mary),  was  founded  on  the 
fact,  that  the  value  of  the  imports  from  that  kingdom  considerably  exceeded 
the  value  of  the  exports.  The  balance  was  termed  a  tribute  paid  by  Eng- 
land to  France  ;  and  it  was  sagaciously  asked,  what  had  we  done  that  we 
should  be  obliged  to  pay  so  much  money  to  our  deadly  enemy  ?  It  never 
occurred  to  these  wise  persons,  that  no  merchant  would  import  any  com- 
modity from  France,  unless  it  brought  a  higher  price  in  this  country  than 
the  commodity  exported  in  its  stead ;  and  that  the  profit  of  the  merchant, 
or,  which  is  the  same  thing,  the  national  gain,  would  depend  on  this  excess 
of  price.  The  reason  assigned  for  prohibiting  the  trade  affords  the  best 
proof  of  its  having  been  a  lucrative  one.  There  cannot,  indeed,  be  a 
doubt,  that  an  unrestricted  freedom  of  intercourse  between  the  two  countries 
would  be  of  the  greatest  service  to  both. 

The  peculiarities  in  the  soil  and  climate,  and  in  the  national  character  of 
the  people  of  Great  Britain  and  France  enable  the  one  to  produce  various 
species  of  raw  and  manufactured  commodities  at  a  cheaper  rate  than  they 
can  be  produced  by  the  other.  If  we  were  allowed  freely  to  purchase  and 
import,  under  moderate  duties,  the  silks,  the  wines,  and  the  brandies  of 
France,  those  things  which  we  can  supply  cheaper  than  our  ingenious 
neighbors  would  be  taken  in  payment.  An  extensive  market  would  thus 
be  created  for  a  vast  variety  of  articles,  and  a  natural  and  powerful  stimu- 
lus would  be  applied  to  the  industry  of  both  countries.  Nobody  denies 
that  the  trade  with  America,  Portugal,  and  the  Baltic  is  advantageous ; 
and  if  so,  why  is  the  trade  with  France  to  be  considered  as  prejudicial  ? 
Supposing  the' trade  between  the  two  countries  were  perfectly  free,  does 
any  one  imagine  that  our  merchants  would  export  or  import  any  commod- 
ity to  or  from  France,  provided  they  could  either  sell  or  buy  it  on  better 
terms  anywhere  else  ?  If  the  restrictions  on  the  French  trade  be  not 


43  Essay  on  Exchange. 

really  injurious,  that  is,  if  the  trade  with  France  be  either  a  losing  or 
a  less  advantageous  one  than  that  with  other  countries,  we  may  rest 
assured  that  the  throwing  it  open  would  not  make  a  single  individual  en- 
gage in  it. 

As  the  real  price  of  commodities  is  always  proportioned,  not  only  to  the 
expense  of  their  production,  but  also  to  the  expense  necessarily  incurred  in 
conveying  them  to  the  place  where  they  are  to  be  consumed,  it  is  plain 
that  a  nation  which  prohibits  trading  with  the  countries  in  her  vicinity 
must  pay  a  higher  price  for  her  imported  commodities,  and  be  obliged  to 
exact  a  higher  price  for  those  which  she  exports,  than  would  be  necessary 
were  she  able  to  procure  the  one  or  to  dispose  of  the  other  in  her  imme- 
diate neighborhood.  If  the  same  sort  of  wine  could  be  bought  at  Bour- 
deaux  equally  cheap  as  at  Lisbon,  the  difference  of  freight  would  enable 
it  to  be  sold  cheaper  in  London.  It  is  this  principle,  in  fact,  which  renders 
the  home  trade  peculiarly  advantageous.  The  parties  engaged  in  it  live 
near  each  other,  and  consequently  each  obtains  the  commodity  of  which 
he  stands  in  need  at  its  cheapest  rate,  and  without  being  obliged  to  pay 
any  great  additional  sum  on  account  of  carriage.  When,  therefore,  we 
restrict  the  trade  with  countries  in  our  immediate  vicinity,  we  act  in  the 
teeth  of  that  very  principle  which  is,  in  every  other  case,  admitted  to  be 
advantageous.  We  compel  such  of  our  people  as  purchase  foreign  com- 
modities, to  buy  them  at  a  comparatively  high  price  ;  while,  by  raising  the 
price  of  the  commodities  we  export,  the  market  for  them  is  injuriously  con- 
tracted. 

But  the  partisans  of  the  exclusive  or  mercantile  system  will  perhaps  tell 
us,  that  they  do  not  mean  to  contend  that  it  is  profitable  to  export  a  greater 
value  than  is  imported,  but  that  by  exporting  an  excess  of  raw  and  manu- 
factured commodities  the  balance  of  payments  is  rendered  favorable,  and 
that  this  balance  (which  they  consider  as  representing  the  entire  net  profit 
made  by  the  country  on  its  transactions  with  foreigners)  is  always  paid  in 
bullion. 


Favorable  or  unfavorable  Balance  not  always  received  or  paid  in  Bullion. 

It  will,  however,  be  easy  to  show  that  this  statement  is  altogether  erro- 
neous ;  that  a  balance,  whether  on  the  one  side  or  the  other,  is  seldom  or 
never  cancelled  by  means  of  bullion  ;  and  that  this  balance  is  not  a  meas- 
ure, and  has  in  fact  nothing  to  do  with  the  profit  or  loss  attending  foreign 
commercial  transactions. 

1.  So  long  as  the  premium  on  foreign  bills  is  less  than  the  expense  at- 
tending the  transit  of  bullion  from  a  country  which  has  an  unfavorable 
real  exchange,  no  merchant  ever  thinks  of  subjecting  himself  to  an  unneces- 
sary expense,  by  exporting  bullion  to  pay  a  foreign  debt.  But  though  the 
premium  on  foreign  bills  had  increased,  so  as  to  equal  the  cost  of  exporting 
the  precious  metals,  for  it  cannot  exceed  this  sum,  it  does  not  by  any  means 
follow  that  they  would  therefore  be  exported.  That  depends  entirely  on 
the  fact,  whether  bullion  be,  at  the  time,  the  cheapest  exportable  commod- 
ity, or,  in  other  words,  whether  a  remittance  of  bullion  be  the  most  advan- 
tageous way  in  which  a  debt  may  be  discharged.  If  a  London  merchant 


Favorable  or  unfavorable  Balance.  49 

owe  £100  in  Paris,  he  sets  about  finding  out  the  cheapest  method  of  paying 
it.  On  the  supposition  that  the  real  exchange  is  two  per  cent,  below  par, 
and  that  the  expense  of  remitting  bullion,  including  the  profit  of  the 
bullion  merchant,  is  also  two  per  cent,  it  will  be  indifferent  to  him  whether 
he  pay  £2  of  premium  for  a  bill  of  £100  payable  in  Paris,  or  incur  an  ex- 
pense of  £2,  by  remitting  £100  worth  of  bullion  directly  to  that  city.  If 
the  prices  of  cloth  in  Paris  and  London  be  such,  that  it  would  require 
£103  to  purchase  and  send  as  much  cloth  to  Paris  as  would  sell  for  £100, 
he  would  undoubtedly  prefer  buying  a  bill  or  exporting  bullion.  But  if, 
by  incurring  an  expense  of  £101,  the  debtor  be  able  to  send  as  much  hard- 
ware to  Paris  as  would  sell  for  £  1 00,  he  would  as  certainly  prefer  paying 
his  debt  by  an  exportation  of  hardware.  By  doing  so,  he  saves  one  per 
cent,  more  than  if  he  bought  a  foreign  bill  or  remitted  bullion,  and  two 
per  cent,  more  than  if  he  exported  cloth.  If  there  had  been  any  other 
commodity  that  might  have  been  exported  with  more  advantage,  he  would, 
of  course,  have  used  it  in  preference.  . 

It  is  obvious,  therefore,  that  the  exportation  of  bullion  is  regulated  by 
precisely  the  same  principles  which  regulate  the  export  and  import  of 
other  commodities.  It  is  exported,  when  its  exportation  is  most  advantage- 
ous ;  that  is,  when  it  is  less  valuable  at  home  and  more  valuable  abroad, 
than  any  other  commodity ;  and  it  cannot  be  otherwise  exported.  The 
balance  of  payments  might  be  a  hundred  millions  against  a  country,  with- 
out depriving  it  of  a  single  ounce  of  bullion.  No  merchant  would  remit 
£100  worth  of  gold  or  silver  from  England  to  discharge  a  debt  in  Paris,  if 
he  could  invest  £98,  £99,  or  any  smaller  sum  in  any  other  species  of  mer- 
chandise, which,  exclusive  of  expenses,  would  sell  in  France  for  £100. 
Those  who  deal  in  the  precious  metals  are,  we  may  depend  upon  it,  as 
much  under  the  influence  of  self-interest  as  those  who  deal  in  coffee  or  indigo. 
But  who  would  attempt  to  discharge  a  foreign  debt,  by  exporting  coffee 
which  cost  £100,  if  he  could  effect  the  same  object  by  sending  abroad 
indigo  which  cost  only  £97  ?  No  person  in  his  senses  would  export  a  hat 
to  be  sold  for  20s.  provided  he  could  sell  it  at  home  for  a  guinea ;  nor 
would  any  person  export  an  ounce  of  bullion,  if  its.  value  were  not 
less  in  the  exporting  than  in  the  importing  country,  or  if  there  were  any 
other  commodity  whatever  that  might  be  exported  with  greater  advan- 
tage. 

2.  It  is  in  vain  to  contend  that,  by  permitting  an  unrestricted  freedom 
of  trade,  one  country  might  become  indebted  to  another,  which  had  no 
demand  for  any  sort  of  ordinary  merchandise,  and  which  would  'only  accept 
of  cash  or  bullion  in  exchange  for  its  exports.  Such  a  case  never  did  and 
never  will  occur.  A  nation  which  is  in  want  of  money  must  also  be  in 
want  of  other  things  ;  for  men  only  desire  money  because  of  its  being  the 
readiest  means  of  increasing  their  command  over  the  necessaries  and  en- 
joyments of  life.  The  extreme  variety,  too,  in  the  soil  and  climate,  in  the 
machinery,  and  in  the  skill  and  industry  of  the  artisans  belonging  to  differ- 
ent countries,  must  always  occasion  a  considerable  difference  in  the  prices 
of  their  products.  And  until  the  cost  of  production  be  equalized,  there 
must  always  be  a  foreign  demand  for  those  commodities  which  can  be  pro- 
duced cheaper  at  home  than  abroad  ;  and  until  the  desire  to  accumulate  be 
banished  from  the  human  breast,  there  must  always  be  an  inclination  to 


50 


Essay  on  Exchange. 


send  commodities  from  those  countries  where  their  exchangeable  value  is 
least  to  where  it  is  greatest. 

3.  In  treating  of  the  nominal  exchange,  we  endeavored  to  show,  that  it 
is  impossible  that  any  country  should  be  able,  for  any  length  of  time,  to 
import  or  export  a  greater  quantity  of  bullion  than  may  be  necessary  to 
preserve  the  value  of  bullion  in  it,  in  its  proper  relation  to  the  bullion  of 
other  countries  ;  or,  which  is  the  same  thing,  to  have  the  real  exchange 
either  permanently  favorable  or  unfavorable.  But  though  this  principle  be 
strictly  true  in  reference  to  its  aggregate  exchanges,  it  is  incorrect  when 
the  state  of  its  exchange  with  one  country  only  is  considered.  Great  Britain, 
for  example,  may  constantly  have  the  exchange  in  her  favor  with  Portugal, 
provided  she  have  it  constantly,  and  to  an  equal  extent,  against  her  with 
the  East  Indies,  or  some  other  country.  "  She  may,"  to  use  the  words  of 
Mr.  Ricardo, "  be  importing  from  the  North  the  bullion  which  she  is  export- 
ing to  the  South.  She  may  be  collecting  it  from  countries  where  it  is  rela- 
tively abundant,  for  others  where  it  is  relatively  scarce,  or  where,  from 
some  particular  causes,  it  is  in  great  demand.  Spain,  who  is  the  great 
importer  of  bullion  from  America,  can  never  have  an  unfavorable  exchange 
with  her  colonies ;  and  as  she  must  distribute  the  bullion  she  receives 
among  the  different  nations  of  the  world,  she  can  seldom  have  a  favorable 
exchange  with  the  countries  with  which  she  trades."  See  Reply  to  Mr. 
BosanqueCs  Observations  on  the  Report  of  the  Bullion  Committee,  p.  17  ;  one 
of  the  best  pamphlets  that  has  ever  been  published  on  the  subject  of  ex- 
change. 

It  was  by  this  principle  that  Lord  King  ingeniously,  and  we  think  suc- 
cessfully, accounted  for  the  nearly  continued  favorable  exchange  between 
this  country  and  Hamburg,  from  1770  to  1799.  His  Lordship  showed  that 
the  importation  of  bullion  from  Hamburg  and  other  countries  was  only 
equivalent  to  the  quantity  exported  to  the  East  Indies  and  consumed  at 
home ;  that  the  demand  corresponded  to  the  supply ;  and  that  its  value 
remained  pretty  stationary.  The  extraordinary  influx  of  bullion  into  this 
country  from  the  Continent,  at  the  era  of  the  bank  restriction  in  1797,  and 
the  very  favorable  state  of  the  exchange,  were  undoubtedly  owing,  in  a 
very  great  degree,  to  the  reduction  in  the  issues  of  bank  paper,  and  to  the 
diminution  of  the  gold  currency  caused  by  the  hoarding  of  guineas,  etc. 
In  1797  and  1798,  above  Jive  millions  of  guineas  were  coined  at  the 
mint ;  and  this  extraordinary  demand  for  gold  is  of  itself  abundantly  suf- 
ficient to  account  for  the  very  favorable  exchange  of  that  period,  and  for 
the  length  of  time  which  it  continued.  But,  at  the  same  time  that  the  de- 
mand for  gold  bullion  for  the  mint  was  thus  increased,  the  demand  for 
silver  bullion,  for  the  purpose  of  exportation  by  the  East  India  Company, 
had  also  been  proportionally  augmented.  In  1795,  the  quantity  exported 
on  account  of  the  Company,  and  of  private  persons,  amounted  to  only 
151,795  ounces. 


In  1796  to 
1797 


290,777 
962,880 


In  1798  to 
1799 


3,565,691 

7,287,327 


From  this  period  the  exportation  of  silver  to  the  East  Indies  was  very 
much  reduced ;  and,  in  the  years  in  which  the  exchange  was  most  unfavor- 
able, it  had  almost  entirely  ceased. 


Foreign   Trade.  51 

Instead,  therefore,  of  the  extraordinary  importation  of  bullion  from 
Hamburg  in  1797  and  1798  affording,  as  Mr.  Bosanquet  and  others  have 
supposed,  a  practical  proof  of  the  fallacy  of  the  opinion  of  those  who  con- 
tend that  it  is  impossible  for  any  length  of  time  to  destroy  the  natural 
equality  in  the  value  of  bullion  in  different  countries,  it  is  a  striking  exam- 
ple of  its  truth.  Without  this  influx,  bullion  in  this  country  could  not 
have  maintained  its  proper  value,  as  compared  with  that  of  other  countries. 
We  imported  it,  because,  owing  to  the  reduction  of  the  paper  currency,  and 
the  increased  exports  by  the  East  India  Company,  its  value  was  rendered 
higher  here  than  on  the  Continent ;  and,  consequently,  because  the  conti- 
nental merchants  found  it  advantageous  to  send  bullion  to  us,  in  the  same 
manner  as  they  would  have  sent  corn,  or  any  other  commodity  for  which 
there  happened  to  be  an  unusual  demand  in  Great  Britain.  For,  however 
favorable  the  real  exchange  between  Hamburg  and  London  might  have 
been  to  the  latter,  we  should  not  have  imported  a  single  ounce  of  bullion, 
had  it  not  been,  at  the  time,  the  most  advantageous  article  with  which 
Hamburg  could  discharge  its  debt  to  London. 

4.  In  the  absence  of  all  other  arguments,  it  would  be  sufficient  to  state, 
that  it  is  physically  impossible  that  the  excess  of  exports  over  imports,  as 
indicated  by  the  custom-house  returns,  should  be  paid  in  bullion.     Every 
country  in  the  world,  with  the  single  exception  of  the  United  States,  has 
its  apparently  favorable  balance  ;  and  of  course,  if  they  really  existed,  they 
would  have  to  be  paid  by  an  influx  of  bullion  from  the  mines  correspondent 
to  their  aggregate  amount.     It  is  certain,  however,  that  the  entire  produce 
of  the  mines,  though  it  were  increased  in  a  tenfold  proportion,  would  be 
insufficient  for  this  purpose !     This  of  itself  is  decisive  of  the  degree  of 
credit  which  ought  to  be  attached  to  the  commonly  received  opinions  on 
this  subject. 

5.  In  the  last  place,  the  profit  on  transactions  with  foreigners  does  not 
consist  in  the  quantity  of  bullion  imported  from  abroad,  but  in  "  the  excess 
of  the  value  of  the  imports  over  the  value  of  the  exports."    If,  in  return 
for  exported  commodities  worth  ten  or  twenty  millions,  we  import  such  as 
are  worth  fifteen  or  thirty,  we  shall  gain  50  per  cent,  by  the  transaction, 
though  the  exports  should  consist  entirely  of  bullion,  and  the  imports  of 
corn,  sugar,  coffee,  etc.     It  is  a  ridiculous  prejudice  that  would  make  us 
import  bullion  rather  than  any  other  commodity.     But  whatever  the  parti- 
sans of  the  exclusive  system  may  say  about  its  being  a  preferable  product, 
a  merchandise  par  excellence,  we  may  be  assured  that  it  will  never  appear 
in  the  list  of  exports  or  imports,  while  there  is  any  other  commodity  with 
which  to  carry  on  trade  that  will  yield  a  larger  profit. 


Effect  of  Fluctuations  in  the  Real  Exchange  on  Foreign  Trade. 

Thus  it  appears  that  the  excess  of  exports  over  imports,  instead  of 
being  any  proof  of  an  advantageous  commerce,  is  distinctly  and  completely 
the  reverse  ;  —  that  a  commercial  country  may,  and  almost  always  does, 
import  commodities  of  greater  value  than  it  exports,  without  rendering 
itself  indebted  to  foreigners  ;  and  that  when  a  balance  of  debt  has  been 
contracted,  that  is,  when  the  sum  payable  to  foreigners  for  imported  com- 


52  Essay  on  Exchange. 

modities  is  greater  than  the  sum  receivable  from  them  for  exported  com- 
modities, the  balance  will  not  be  paid  by  sending  bullion  from  the  debtor  to 
the  creditor  country,  unless  it  be  at  the  time  the  most  profitable  article  of 
export. 

We  have,  in  the  previous  chapter,  shown  that  fluctuations  in  the  nominal 
exchange  have  no  effect  on  foreign  trade.  "When  the  currency  is  depreci- 
ated, the  premium  which  an  exporter  derives  from  the  sale  of  the  bill 
drawn  on  his  correspondent  abroad,  is  barely  equivalent  to  the  increase  in 
the  price  of  the  goods  exported,  occasioned  by  the  depreciation.  But  when 
the  premium  on  a  foreign  bill  is  not  a  consequence  of  a  fall  in  the  value  of 
money,  but  of  a  deficiency  in  the  supply  of  bills,  there  is  no  rise  of  prices, 
and  under  such  circumstances  the  unfavorable  exchange  undoubtedly  op- 
erates as  a  stimulus  to  exportation.  As  soon  as  the  real  exchange  di- 
verges from  par,  the  mere  inspection  of  a  price  current  is  no  longer 
sufficient  to  regulate  the  operations  of  the  merchant.  If  it  be  unfavorable, 
the  premium  which  an  exporter  receives  on  the  sale  of  bills  must  be 
included  in  the  estimate  of  the  profit  he  is  likely  to  derive  from  the  transac- 
tion. The  greater  that  premium,  the  less  will  be  the  difference  of  prices 
necessary  to  make  him  export.  And  hence  an  unfavorable  real  exchange 
has  exactly  the  same  effect  as  a  bounty  on  exportation  equal  to  the  premi- 
um on  foreign  bills. 

But  for  the  same  reason  that  an  unfavorable  real  exchange  increases 
exportation,  it  proportionally  diminishes  importation.  When  the  ex- 
change is  really  unfavorable,  the  price  of  foreign  commodities  brought  to 
our  markets  must  be  so  much  under  their  price  at  home,  as  not  merely  to 
afford,  exclusive  of  expenses,  the  ordinary  profit  on  their  sale,  but  also  to 
pay  the  premium  which  the  importer  must  give  for  a  foreign  bill,  if  he 
remit  one  to  his  correspondent,  or  for  the  discount,  added  to  the  invoice 
price,  if  the  latter  draw  upon  him.  A  much  less  quantity  of  foreign 
goods  will  therefore  suit  our  markets  when  the  real  exchange  is  unfavor- 
able ;  and  fewer  payments  having  to  be  made  abroad,  the  competition 
for  foreign  bills  is  diminished,  and  the  real  exchange  rendered  propor- 
tionally favorable.  In  the  same  way,  it  is  easy  to  see  that  a  favorable  real 
exchange  must  operate  as  duty  on  exportation,  and  as  a  bounty  on  importa- 
tion. 

It  is  thus  that  fluctuations  in  the  real  exchange  have  a  necessary 
tendency  to  correct  themselves.  They  can  never,  for  any  considerable 
period,  exceed  the  expense  of  transmitting  bullion  from  the  debtor  to  the 
creditor  country.  But  the  exchange  cannot  continue  permanently  favor- 
able or  unfavorable  to  this  extent.  When  favorable,  it  corrects  itself  by 
restricting  exportation  and  facilitating  importation  ;  and  when  unfavorable, 
it  produces  the  same  effect  by  giving  an  unusual  stimulus  to  exportation, 
and  by  throwing  obstacles  in  the  way  of  importation.  The  true  PAR 
forms  the  centre  of  these  oscillations;  and  though  the  thousand  circum- 
stances that  daily  and  hourly  affect  the  state  of  debt  and  credit,  prevent 
the  ordinary  course  of  exchange  from  being  almost  ever  precisely  at  par, 
its  fluctuations,  whether  on  the  one  side  or  the  other,  are  confined  within 
certain  limits,  and  have  a  constant  tendency  to  disappear. 

The  natural  tendency  which  the  exchange  has  to  correct  itself  is  power- 
fully assisted  by  the  operations  of  the  bill  merchants. 


Foreign  Trade.  53 


The  Operations   of  the  Bill  Merchants  have  a    Tendency  to   lessen    Fluctuations   in  th? 

Real  Exchange. 

England,  for  example,  may  owe  an  excess  of  debt  to  Amsterdam,  yet  as 
the  aggregate  amount  of  the  debts  due  by  a  commercial  country,  is  generally 
balanced  by  the  amount  of  those  which  it  has  to  receive,  the  deficiency  of 
bills  on  Amsterdam  in  London  will  most  probably  be  countervailed  by  a 
proportional  redundancy  of  them  in  some  other  quarter.  Now,  it  is  the 
business  of  the  merchants  who  deal  in  bills,  as  of  those  who  deal  in  bullion 
or  anything  else,  to  buy  them  where  they  are  cheap,  and  to  sell  them 
where  they  are  dear.  They  therefore  buy  up  the  bills  drawn  by  other 
countries  on  Amsterdam,  and  dispose  of  them  in  London ;  and  by  so 
doing,  prevent  any  great  fall  in  the  price  of  bills  on  Amsterdam  in  those 
countries  in  which  the  supply  exceeds  the  demand,  and  any  great  rise  in 
Great  Britain  and  those  countries  in  which  the  supply  happens  to  be  defi- 
cient. In  the  trade  between  Italy  and  this  country,  the  bills  drawn  on 
Great  Britain  amount  almost  invariably  to  a  greater  sum  than  those  drawn 
on  Italy.  The  bill  merchants,  however,  by  buying  up  the  excess  of  the 
Italian  bills  on  London,  and  selling  them  in  France,  Holland,  and  other 
countries  indebted  to  England,  prevent  the  real  exchange  from  ever  be- 
coming very  much  depressed. 

A  large  Foreign  Expenditure  has  no  Permanent  Effect  on  the  Exchange. 

An  unusual  deficiency  in  the  supply  of  corn,  or  of  any  other  article 
of  prime  necessity,  the  demand  for  which  could  not  be  immediately  con- 
tracted by  causing  a  sudden  augmentation  of  the  imports  from  abroad,  ma- 
terially affects  the  state  of  debt  and  credit  with  foreign  countries,  and 
depresses  the  exchange.  In  time  of  war,  the  balance  of  payments  is  liable 
to  be  still  further  deranged ;  the  amount  of  the  bills  drawn  on  a  country 
carrying  on  foreign  hostilities,  being  increased  by  the  whole  expense  of  its 
armaments  abroad,  and  of  subsidies  to  foreign  powers.  But  neither  the 
conjoined  nor  separate  influence  of  both  or  either  of  these  causes  can  exert 
any  permanent  influence  over  the  exchange.  A  sudden  increase  in  the 
accustomed  supply  of  bills  must,  in  the  first  instance,  by  glutting  the  mar- 
ket, occasion  their  selling  at  a  discount ;  but  this  effect  can  only  be  of 
temporary  duration.  The  unusual  facilities  which  are  then  afforded  for  the 
exportation  of  manufactured  produce  to  the  foreign  market,  and  the  diffi- 
culties which  are  thrown  in  the  way  of  importation,  never  fail  speedily  to 
bring  the  real  exchange  to  par. 

In  a  period  of  profound  peace  we  may,  by  exporting  an  excess  of  raw  or 
manufactured  produce,  overload  the  foreign  market,  and  occasion  such  a 
decline  in  the  price  of  British  goods  abroad,  as  to  render  the  imported  less 
valuable  than  the  exported  commodities  with  which' they  have  been  pur- 
chased. But  such  a  state  of  things  speedily  effects  its  own  cure.  The 
distress  which  it  necessarily  occasions  leads  to  an  immediate  diminution  of 
exports  ;  and  the  supply  of  British  commodities  in  the  foreign  market 
being  thus  rendered  more  nearly  commensurate  with  the  demand,  they  of 
course  sell  for  an  adequate  profit ;  and  the  value  of  the  imports  again 


54  Essay  on  Exchange. 

exceeds,  as  it  always  ought  to  do,  the  value  of  the  exports.  But  whenever 
a  country  has  a  large  foreign  expenditure  to  sustain,  its  exports  are  pro- 
portionally augmented.  Such  an  expenditure  can  only  be  discharged 
either  by  the  government  directly  sending  abroad  an  equivalent  amount 
of  commodities,  or  by  means  of  bills  of  exchange  drawn  against  produce 
exported  by  private  individuals.  Supposing  the  foreign  expenditure  of 
Great  Britain  during  the  late  war  to  have  amounted  to  ten  or  twenty 
millions  a  year,  it  is  evident  we  must  have  annually  exported  an  equal 
amount  of  the  produce  of  our  land,  capital,  and  labor,  for  which  payment 
would  be  received,  not,  as  in  ordinary  cases,  by  a  corresponding  importa- 
tion of  foreign  commodities,  but  from  the  treasury  at  home.  This  is 
strictly  true,  even  though  it  were  admitted  that  the  expenditure  had  in  the 
first  instance  been  entirely  discharged  by  remittances  of  bullion  ;  for  the 
increased  supply  of  bullion  which  was  thus  required  could  be  obtained 
only  by  an  equally  increased  exportation  of  other  produce  to  the  countries 
possessed  of  mines,  or  from  which  it  could  be  advantageously  imported. 
Foreign  expenditure,  by  increasing  exports  precisely  in  proportion  to 
its  own  amount,  is  incapable  of  exerting  any  permanent  effect  on  the  ex- 
change. 

Thus  it  appears  that  a  really  great  excess  of  exports,  instead  of  being 
any  criterion  of  increasing  wealth  at  home,  is  only  a  certain  indication  of 
great  expenditure  abroad.  "  When,"  says  Mr.  Wheatley,  "  the  exports 
exceed  the  imports,  as  they  must  do  when  there  is  a  large  foreign  expendi- 
ture, the  equivalents  for  the  excess  are  received  abroad  in  as  full  and 
ample  a  manner  as  if  the  produce  which  they  purchased  were  actually 
imported  and  entered  in  the  custom-house  books,  and  afterwards  sent  to  the 
seat  of  war  for  consumption.  But  from  the  circumstance  of  its  not  being 
inserted  in  the  custom-house  entries  as  value  received  against  the  produce 
exported  for  its  payment,  the  latter  is  deemed  to  constitute  a  favorable 
balance,  when  it  is  in  reality  exported  to  liquidate  a  balance  against  us/' 
(Wheatley  On  the  Theory  of  Money,  p.  219.) 


di'tse  of  the  Rise  of  the  Exchange  in  1815  and  1816. 

But  however  conclusive  this  reasoning  may  appear,  it  has  nevertheless 
been  contended,  that  it  is  at  variance  with  the  fact ;  and  that  the  rise  of  the 
exchange  in  autumn,  1814,  and  its  restoration  to  par  in  1816,  when  the 
restriction  on  cash  payments  at  the  bank  was  in  full  operation,  is  a  practical 
and  convincing  proof  that  its  previous  depression  had  not  been  a  conse- 
quence of  the  depreciation  of  the  currency,  but  of  the  excessive  supply  of 
bills  on  London  in  the  foreign  market,  occasioned  by  the  expensive  contest 
in  which  we  were  then  engaged.  According  to  our  view  of  the  matter, 
however,  this  fact  leads  to  a  precisely  opposite  conclusion.  It  is  of  no  use 
to  tell  us  that  the  exchange  came  to  par  while  the  restriction  act  was  unre- 
pealed.  It  was  never  contended  that  the  fact  of  such  law  being  in  existence 
had  any  effect  on  the  currency.  The  restriction  was  justly  condemned, 
because  it  enabled  the  Bank  of  England  to  deluge  the  country  with  paper. 
If  the  bank  had  never  abused  that  power,  —  if  the  proprietors  had  sacri- 
ficed their  own  individual  interests  to  those  of  the  public,  and  had  con- 


Cause  of  the  Rise  of  Exchange.  55 

stantly  kept  their  paper  on  a  level  with  bullion,  —  the  restriction  act, 
though  unwise,  would,  as  to  consequences,  have  been  the  same  as  if  it  had 
never  existed.  The  question  is  not,  therefore,  whether  the  exchange  came 
to  par  while  the  restriction  continued,  but  whether  it  came  to  PAR  while  as 
many  notes  circulated  as  in  the  period  of  its  greatest  depression  ?  If  this 
could  be  shown,  and  if  it  could  also  be  shown  that  the  effective  demand  for 
paper  had  not,  at  the  same  time,  been  proportionally  increased,  the  argument 
would  be  conclusive  ;  and  we  should  be  compelled  to  admit  that  a  great 
comparative  increase  of  paper  money  has  no  tendency  to  diminish  its 
value,  or  to  render  the  nominal  exchange  unfavorable. 

But  it  would  be  worse  than  idle  to  set  about  proving,  by  argument,  a 
fact  so  notorious  as  the  prodigious  diminution  of  bank  paper,  in  1814, 

1815,  and  1816.     In  that  period,   above  240  country  banks  stopped  pay- 
ment ;  and   ninety-two  commissions  of  bankruptcy  were  issued  against 
these  establishments  ;  being  at  the  rate  of  one  commission  against  every 
seven  and  a  half  of  the  total  number  of  banks  existing  in  1813!     The 
Board   of  Agriculture    estimated   that,   in  the  county  of  Lincoln  alone, 
above  three  millions  of  bank  paper  had  been  withdrawn  from  circulation  ; 
and  the  total  diminution  of  the  currency  during  the  three  years  in  ques- 
tion has  seldom  been  estimated  at  less  than  from  sixteen  or  twenty  millions, 
though  it  probably  amounted  to  a  great  deal  more.     Mr.  Horner,  the  accu- 
racy and  extent  of  whose  information  cannot  be  called  in  question,  made 
the  following  statement  on  this  subject,  in  his  place  in  parliament. 

"  From  inquiries  he  had  made,  and  from  the  accounts  on  the  table,  he 
was  convinced  that  a  greater  and  more  sudden  reduction  of  the  circulating 
medium  had  never  taken  place  in  any  country  than  had  taken  place  since 
the  peace  in  this  country,  with  the  exception  of  those  reductions  that  had 
taken  place  in  France  after  the  Mississippi  scheme,  and  after  the  destruc- 
tion of  the  assignats.  The  reduction  of  the  currency  had  originated  in 
the  previous  fall  of  the  prices  of  agricultural  produce.  That  fall  had  pro- 
duced a  destruction  of  country-bank  paper,  to  an  extent  which  would  not 
have  been  thought  possible,  without  more  ruin  than  had  actually  ensued. 
The  Bank  of  England  had  also  restricted  its  issues.  As  appeared  by  the 
accounts  recently  presented,  the  average  amount  of  its  currency  was  not, 
during  the  last  year,  more  than  between  £25,000,000  and  £26,000,000 ; 
while  two  years  ago  it  had  been  nearer  £29,000,000,  and  at  one  time  even 
amounted  to  £31,000,000.  But  without  looking  to  the  diminution  of 
Bank  of  England  paper,  the  reduction  of  the  country  paper  was  enough 
to  account  for  the  rise  which  had  taken  place  in  the  exchange." 

Here,  then,  is  the  cause  of  the  exchange  coming  to  par  in  1815  and 

1816.  It  had  nothing  to  do  with  the  cessation  of  hostilities,  but  was  en- 
tirely a  consequence  of  the  increased  value  of  our  currency,  caused  by  the 
sudden  reduction  of  its  quantity.     Instead,  therefore,  of  being  at  variance 
with  the  principles  we  have  been  endeavoring  to  elucidate,  this  fact  affords 
the  strongest  confirmation  of  their  perfect  correctness.     And  having  been 
sanctioned  by  the  fullest  experience,  they  may  be  considered  as  beyond  the 
reach  of  cavil  and  dispute. 

An  objection  of  a  different  sort  has  been  made,  by  a  very  able  economist, 
to  another  part  of  the  theory  maintained  in  this  chapter,  of  which  it  may 
here  be  proper  to  take  some  notice. 


56  Essay  on  Exchange. 


CHAPTER  IV. 


UNFAVORABLE    REAL    EXCHANGE. 

Refutation  of  the    Opinion  that  during   an  unfavorable   Real    Exchange,   Commodities  of 
Great  Value  and  Small  Bulk  are  Exported  in  Preference  to  others. 

WHEN  the  exchange  becomes  unfavorable,  the  premium  procured  by  the 
sale  of  the  bill  drawn  on  a  foreign  merchant,  to  whom  bullion  has  been 
consigned,  is  no  greater  than  would  be  obtained  by  consigning  to  him  coffee, 
tea,  sugar,  indigo,  etc.,  of  equal  value.  An  unfavorable  real  exchange 
permits  a  merchant  to  export  commodities  which  could  not  be  exported 
were  the  real  exchange  at  par,  or  favorable ;  but  the  advantage  still  re- 
mains, of  exporting  those  commodities  in  preference,  whose  price  in  the 
country  from  which  they  are  exported,  compared  with  their  price  in  the 
country  into  which  they  are  imported,  is  lowest.  Suppose,  for  example, 
that  the  expense  of  transmitting  bullion  from  this  country  to  France  is 
three  per  cent. ;  that  the  real  exchange  is  four  per  cent,  against  us  ;  that 
the  price  of  bullion  is  the  same  in  both  countries ;  and  that  coffee,  exclu- 
sive of  the  expenses  of  carriage,  is  really  worth  four  per  cent,  more  in 
France  that  in  England.  In  such  a  case,  it  is  obvious,  the  exporter 
of  bullion  would  realize  only  a  profit  of  one  per  cent.,  while  the  exporters 
of  coffee  would  realize,  inclusive  of  the  premium  on  the  sale  of  the  foreign 
bill,  a  profit  of  seven  per  cent.  And  hence  the  opinion  maintained  by 
Colonel  Torrens  (  Comparative  Estimate,  etc.)  that  when  the  exchange  be- 
comes unfavorable,  those  commodities  which  contain  the  greatest  value  in 
the  smallest  bulk,  or  on  which  the  expense  of  carriage  is  least,  would  be 
exported  in  preference,  appears  to  rest  on  no  good  foundation. 

The  prices  of  the  commodities  which  nations  trading  together  are  in  the 
habit  of  exporting  and  importing,  are  regulated  not  merely  by  the  cost  of 
their  production,  but  also  by  the  expense  necessarily  incurred  in  carrying 
them  from  where  they  are  produced  to  where  they  are  consumed.  If 
Great  Britain  were  in  the  constant  habit  of  supplying  France  with  corn 
and  bullion,  the  average  price  of  corn  in  France,  because  of  the  expense 
required  to  convey  it  from  this  country,  would  plainly  be  from  ten  to 
fifteen  per  cent,  higher  than  in  Britain  ;  while,  because  of  the  comparative 
facility  with  which  bullion  might  be  transported  from  the  one  to  the  other, 
its  value  in  Paris  would  not  exceed  its  value  in  London  more  than  one  or 
two  per  cent.  Now,  supposing  that  when  the  prices  of  both  corn  and 
bullion  in  Great  Britain  and  France  are  adjusted  according  to  their  natural 
proportions,  the  real  exchange  becomes  unfavorable  to  us ;  it  is  clear,  that 
this  fall  in  the  exchange  gives  no  more  advantage  to  the  exporters  of 
bullion  than  to  those  of  corn.  The  rise  in  the  price  of  foreign  bills  does 
not  increase  the  expense  attending  the  exportation  of  corn  or  bullion.  It 
leaves  the  cost  of  producing  and  transporting  these  commodities  exactly 


Unfavorable  Real  Exchange. 


57 


where  it  found  it.  During  the  depression  of  the  exchange,  the  exporters 
of  both  articles  derive  a  premium  from  the  sale  of  the  bills  drawn  on  their 
foreign  correspondents.  But  there  can  be  no  inducement  to  export  bullion 
in  preference  to  corn,  unless  the  real  price  of  bullion  should  increase  more 
rapidly  in  France,  or  decline  more  rapidly  in  Great  Britain,  than  the  real 
price  of  corn. 

Whatever,  therefore,  may  be  the  depression  of  the  exchange,  the  mer- 
chant invariably  selects  those  commodities  for  exportation,  which,  exclusive 
of  the  premium,  yield  the  greatest  profit  on  their  sale.  If  bullion  be  one 
of  these  commodities,  it  will  of  course  be  exported ;  if  not,  not.  Bullion, 
however,  of  all  commodities,  is  that  of  which  the  value  approaches  nearest 
to  an  equality  in  different  countries,  and  hence  it  is  the  least  likely  to  be 
exported  during  an  unfavorable  exchange.  The  demand  for  it  is  compara- 
tively steady,  and  no  great  surplus  quantity  could  be  imported  into  one 
country  without  reducing  its  value,  or  exported  from  another  without  rais- 
ing its  value,  so  as  to  unfit  it  either  for  exportation  or  importation.  A  very 
small  part  only  of  an  unfavorable  balance  is  ever  paid  in  bullion.  The 
operations  of  the  bullion  merchant  are  chiefly  confined  to  the  distribution 
of  the  fresh  supplies  which  are  annually  dug  from  the  mines  proportionally 
to  the  effective  demand  of  different  countries.  Its  price  is  too  invariable, 
or,  which  is  the  same  thing,  its  supply  and  demand  are  too  constant,  to 
admit  of  its  ever  becoming  an  important  article  in  the  trade  between 
any  two  countries,  neither  of  which  possesses  mines. 

In  corroboration  of  this  argument,  we  may  mention  that,  according  to 
the  official  statement  laid  on  the  table  of  the  House  of  Commons,  it 
appears  that  the  expenses  incurred  by  this  country  on  account  of  the 
armies  acting  in  Portugal  and  Spain  during  the  following  years,  were  as 
under : — 


In  1808 
1809 
1810 
1811 


£2,903,540 
2,450,956 
6,066,021 
8,906,700 


In  1812) 
1813/ 
1814 


£31,767,794 
13,000,000 


Of  which,  according  to  the  same  official  statement,  only  the  following 
sums  were  remitted  in  coin  or  bullion  :  — 


In  1808 
1809 
1810 


£2,861,339 
461,926 
697,675 


In  1811 
1812) 
1813  j 


£748,053 
3,284,435 


Of  the  sum  of  five  millions  voted  to  our  allies  in  1813  and  1814,  not 
more  than  £300,000  was  sent  in  bullion,  the  rest  being  made  up  by  the 
exportation  of  manufactured  goods  and  military  stores.  (Edinburgh  Review, 
vol.  xxvi.  p.  154.)  The  high  market  price  of  gold  and  silver  in  1809. 
1810,  etc.,  could  not,  therefore,  be  owing  to  the  purchases  made  by 
government,  for  they  were  not  greater  than  the  sums  exported  by  the 
East  India  Company  in  1798  and  1799,  and  in  1803,  1804,  and  1805, 
when  there  was  scarcely  any  perceptible  rise  in  the  price  of  bullion.  The 
immense  additions  made  to  the  paper  currency  of  the  country  in  1809, 


58  Essay  on  Exchange. 

1810,  etc.,  sunk  its  value  compared  with  bullion,  and  was  the  true  cause  of 
the  unfavorable  nominal  exchange  of  that  period. 


COMPUTED    EXCHANGE. 

Having  thus  endeavored  to  point  out  the  manner  in  which  variations  in 
the  comparative  value  of  the  currencies  of  nations  trading  together,  and 
in  the  supply  and  demand  for  bills,  separately  effect  the  exchange,  it  now 
only  remains  to  ascertain  their  combined  effect.  It  is  on  this  that  the  com- 
puted or  actual  course  of  exchange  depends. 

The,   Computed  Exchange  Represents  eitlter  the  Sum  or  the  Difference  of  the  Reed  and 

Nominal  Exchange. 

From  what  has  been  already  stated,  it  must  be  obvious,  that  when  the 
nominal  and  real  exchange  are  both  favorable  or  both  unfavorable,  the 
computed  exchange  will  express  their  sum;  and  that  when  the  one  is 
favorable  and  the  other  unfavorable,  it  will  express  their  difference. 

When,  for  example,  the  currency  of  Great  Britain  is  of  the  mint 
standard  and  purity,  and  the  currency  of  France  five  per  cent,  degraded,  the 
nominal  exchange  will  be  five  per  cent,  in  favor  of  this  country.  But  the 
real  exchange  may,  at  the  same  time,  be  either  favorable  or  unfavorable. 
If  it  be  also  favorable  to  the  extent  of  one,  two,  three,  etc.,  per  cent.,  the 
computed  exchange  will  be  six.  seven,  eight,  etc.,  per  cent,  in  favor  of  this 
country.  And,  on  the  other  hand,  if  it  be  unfavorable  to  the  extent  of  one, 
two,  three,  etc.,  per  cent.,  the  computed  exchange  will  be  only  four,  three, 
two,  etc.,  per  cent,  in  our  favor.  When  the  real  exchange  is  in  favor  of  a 
particular  country,  provided  the  nominal  exchange  be  equally  against  it, 
the  computed  exchange  will  be  at  par,  and  vice  versa. 

A  comparison  of  the  market  with  the  mint  price  of  bullion  affords  the 
best  criterion  by  which  to  ascertain  the  state  of  the  exchange  at  any  par- 
ticular period.  When  no  restrictions  are  imposed  on  the  trade  in  the 
precious  metals,  the  excess  of  the  market  over  the  mint  price  of  bullion 
affords  a  pretty  accurate  measure  of  the  depreciation  of  the  currency.  If 
the  market  and  mint  price  of  bullion  at  Paris  and  London  exactly  corre- 
sponded, and  if  the  value  of  bullion  was  the  same  in  both  countries,  the 
nominal  exchange  would  be  at  par  ;  and  whatever  fluctuations  the  computed 
exchange  might  exhibit,  must,  in  such  a  case,  be  traced  to  fluctuations 
in  the  real  exchange,  or,  which  is  the  same  thing,  to  the  supply  and  de- 
mand for  bills.  If,  when  the  market  price  of  bullion  in  Paris  is  equal  to 
its  mint  price,  it  exceeds  it  ten  per  cent,  in  London,  it  is  a  proof  that  our 
currency  is  ten  per  cent,  depreciated,  and  consequently  the  nominal  ex- 
change between  Paris  and  London  must  be  ten  per  cent,  against  the  latter. 
Instead,  however,  of  the  computed  or  actual  course  of  exchange  being  ten 
per  cent,  against  London,  it  may  be  against  it  to  a  greater  or  less  extent, 
or  in  its  favor.  It  will  be  more  against  it,  provided  the  real  exchange  be 
also  unfavorable,  —  it  will  be  less  against  it,  provided  the  real  exchange  be 
in  favor  of  London,  though  to  a  less  extent  than  the  adverse  nominal  ex- 
change, —  and  it  will  be  in  favor  of  London,  should  the  favorable  real 


Computed  Exchange.  59 

exceed  the  unfavorable  nominal  exchange.  Thus,  if  while  British  cur- 
rency is  ten  per  cent,  depreciated,  -and  French  currency  at  par,  the  com- 
puted or  actual  course  of  exchange  between  Paris  and  London  were  twelve 
or  fifteen  per  cent,  against  the  latter,  it  would  show  that  the  real  exchange 
was  also  against  this  country  to  the  extent  of  two  or  three  per  cent.  And 
if,  on  the  other  hand,  the  computed  exchange  was  only  five  or  six  per  cent, 
against  London,  it  would  show  that  the  real  exchange  was  four  or  five  per 
cent,  in  its  favor,  and  so  on. 

It  has  already  been  shown,  that,  in  so  far  at  least  as  the  question  of  ex- 
change is  involved,  the  differences  in  the  value  of  bullion  in  different 
countries  are  limited  by  the  expense  of  its  transit  from  one  to  another. 
And  hence,  by  ascertaining  whether  a  particular  country  exports  or  im- 
ports bullion  to  or  from  other  countries,  we  are  able  to  determine  its  com- 
parative value  in  these  countries.  Suppose,  for  example,  that  the  expense 
of  conveying  bullion  from  this  country  to  France,  including  the  profits  of  the 
bullion  dealer,  is  two  per  cent. ;  it  is  clear,  inasmuch  as  bullion  is  only 
exported  to  find  its  level,  that  whenever  our  merchants  begin  to  export  it 
to  France,  its  value  there  must  be  two  per  cent,  greater  than  in  England ; 
and,  on  the  contrary,  when  they  import  bullion  from  France,  it  must  be 
two  per  cent,  more  valuable  here  than  in  France.  In  judging  of  the  ex- 
change between  any  two  countries,  this  circumstance  must  always  be  at- 
tended to.  If  no  bullion  be  passing  from  the  one  to  the  other,  we  may 
conclude  that  its  value  is  nearly  the  same  in  both ;  at  all  events,  it  is  cer- 
tain that  the  difference  of  its  value  is  not  greater  than  the  expense  of  tran- 
sit. On  the  supposition  that  the  entire  expense,  including  profit,  etc.,  of 
conveying  bullion  from  Rio  Janeiro  to  London  is  five  per  cent.,  and  that 
the  London  merchants  are  importing  bullion,  then  it  is  clear,  provided  the 
real  exchange  be  at  par,  and  that  the  currency  of  both  cities  is  at  the  mint 
standard,  that  the  nominal,  or,  which  in  this  case  is  the  same  thing,  the 
computed  exchange,  will  be  five  per  cent,  in  favor  of  London. 

But  if  the  currency  of  London  be  five  per  cent,  depreciated,  or,  in  other 
words,  if  the  market  price  of  bullion  at  London  be  five  per  cent,  above  its 
mint  price,  the  computed  exchange  between  it  and  Rio  Janeiro,  supposing 
the  real  exchange  to  continue  at  par,  will  obviously  also  be  at  par.  It 
may  therefore  be  laid  down  as  a  general  rule,  that  as  soon  as  bullion  begins 
to  pass  from  one  country  to  another,  the  expense  of  transit,  provided  the 
mint  and  market  price  of  bullion  in  the  exporting  country  correspond,  will 
indicate  how  much  the  value  of  bullion  in  it  falls  short  of  its  value  in  the 
country  into  which  it  is  imported ;  or,  which  is  the  same  thing,  will  be 
equal  to  its  unfavorable  nominal  exchange  ;  and  that,  when  the  market 
exceeds  the  mint  price  of  bullion  in  the  exporting  country,  the  expense  of 
transit  added  to  this  excess  will  give  the  total  comparative  reduction  of  the 
value  of  the  precious  metals  in  that  country.  The  converse  of  this  takes  place 
in  the  country  importing  bullion.  When  its  currency  is  of  the  mint  standard, 
the  expense  of  transit  measures  the  extent  of  its  favorable  nominal 
exchange  ;  but  when  its  currency  is  relatively  redundant  or  degraded,  the 
difference  between  the  expense  of  transit  and  the  excess  of  the  market 
above  the  mint  price  of  bullion,  will  measure  the  extent  of  the  favorable  or 
unfavorable  nominal  exchange.  It  will  be  favorable  when  the  deprecia- 
tion is  less  than  the  expense  of  transit,  and  unfavorable  when  it  is  greater. 


60  Essay  on  Exchange. 


State  of  the  Exchange  between  Great  Britain  and  the  Continent  from  1809  to  1815. 

From  1809  to  1815  inclusive,  Great  Britain  continued  to  export  gold 
and  silver  to  the  Continent.  During  this  period,  therefore,  we  must  add 
the  expenses  attending  its  transit  to  the  excess  of  the  market  over  the  mint 
price  of  bullion,  in  order  to  ascertain  the  true  relative  value  of  British  cur- 
rency, and  the  state  of  the  real  exchange.  Mr.  Goldsmid  stated  to  the 
bullion  committee  that,  during  the  last  five  or  six  months  of  the  year  1809, 
the  expense  of  transporting  gold  to  Holland  and  Hamburg,  inclusive  of 
freight,  insurance,  exporter's  profit,  etc.,  varied  from  four  to  seven  per 
cent.  But  at  the  same  time  the  relative  value  of  bullion  in  Britain  was  at 
five  and  a  half  (medium  of  four  and  seven)  per  cent,  below  its  value  in 
Hamburg,  the  market  price  of  gold  bullion  exceeded  its  mint  price  to  the 
extent  of  sixteen  or  twenty  per  cent,  or  eighteen  per  cent,  on  a  medium  ; 
so  that  the  currency  of  this  country,  as  compared  with  the  currency  of 
Hamburg,  which  differed  very  little  from  its  mint  standard,  was  really  de- 
preciated to  the  extent  of  twenty-three  and  a  half  per  cent.  Now,  as  the 
computed  or  actual  course  of  exchange  varied,  during  the  same  period, 
from  nineteen  to  twenty-one  per  cent,  against  London,  it  is  clear  that  the 
real  exchange  could  not  be  very  different  from  par.  Had  the  computed 
exchange  been  less  unfavorable,  it  would  have  shown  that  the  real 
exchange  was  in  favor  of  London ;  had  it  been  more  unfavorable,  it 
would,  on  the  contrary,  have  shown  that  the  real  exchange  was  decidedly 
against  London. 

Causes  of  the  Exportation  of  Bullion  in  1809,  1810,  etc. 

Provided  an  accurate  account  could  be  obtained  of  the  expense  attending 
the  transit  of  bullion  from  this  country  to  the  Continent  during  the  subse- 
quent years  of  the  war,  we  have  no  doubt  it  would  be  found,  notwithstand- 
ing the  extraordinary  depression  of  the  nominal,  that  the  real  exchange 
fluctuated  very  little  from  par  ;  and  that  the  exportation  of  gold  and  silver 
was  a  consequence,  not  of  the  balance  of  payments  being  against  this  coun- 
try, but  of  its  being  advantageous  to  export  bullion,  because  of  its  being 
less  valuable  here  than  on  the  Continent.  No  person  will  contend  that,  in 
1809,  1810,  etc.,  there  was  such  a  redundancy  of  gold  or  silver  currency 
in  this  country  as  to  sink  the  relative  value  of  these  metals.  Any  such 
supposition  is  altogether  out  of  the  question.  During  the  period  referred 
to,  the  precious  metals  were  sent  out  of  the  country,  because  the  deprecia- 
tion of  the  paper  currency  exceeded  the  cost  of  the  transit  of  bullion  ;  and 
hence,  because  it  was  every  body's  interest  to  pay  their  debts  in  the  depre- 
ciated currency,  and  to  export  that  which  was  undepreciated  to  other  coun- 
tries where  there  was  no  law  to  prevent  its  passing  at  its  full  value  as  coin, 
or  in  which  there  was  a  greater  demand  for  bullion.  It  is  indisputably 
certain  that,  if  our  paper  currency  had  been  sufficiently  reduced,  the  supply 
of  gold  in  the  kingdom  in  1809,  1810,  etc.,  compared  with  the  demand 
which  must,  under  such  circumstances,  have  been  experienced,  was  so  very 
small,  that,  instead  of  exporting,  we  should  have  imported  the  precious 
metals  from  every  country  in  the  world. 


Unfavorable  Exchange.  61 


The   unfavorable  Exchange  during  the  latter  Years  of  the   War,  no  Cause  of  the  Extra- 
ordinary Exportation  of  British  Produce  to  the  Continent. 

It  has  been  very  generally  supposed,  that  the  extraordinary  exportation 
of  British  goods  to  the  Continent  during  the  latter  years  of  the  war,  was 
in  a  great  measure  owing  to  the  depression  of  the  exchange.  But,  in  so 
far  as  this  depression  was  occasioned  by  the  redundancy  or  depreciation  of 
the  currency,  it  could  have  no  such  effect.  It  is  impossible,  indeed,  to  form 
any  opinion  as  to  the  influence  of  fluctuations  in  the  computed  exchange  on 
export  and  import  trade,  without  previously  ascertaining  whether  they  are 
a  consequence  of  fluctuations  in  the  real  or  nominal  exchange.  It  is  only 
by  an  unfavorable  real  exchange  that  exportation  is  facilitated  ;  and  it  may 
be  favorable  at  the  very  moment  that  the  computed  exchange  is  decidedly 
unfavorable.  "  Suppose,"  to  use  an  example  given  by  Mr.  Blake,  "  the 
computed  exchange  between  Hamburg  and  London  to  be  one  per  cent, 
against  this  country,  and  that  this  arises  from  a  real  exchange  which  is 
favorable  to  the  amount  of  four  per  cent,  and  a  nominal  exchange  unfavor- 
able to  the  extent  of  five  per  cent;  let  the  real  price  of  bullion  at 
Hamburg  and  London  be  precisely  the  same,  and,  consequently,  the 
nominal  prices  different  by  the  amount  of  the  nominal  exchange  of  five 
per  cent. ;  now,  if  the  expenses  of  freight,  insurance,  etc.,  on  the  transit 
of  bullion  from  Hamburg  are  three  per  cent.,  it  is  evident  that  a  profit 
would  be  derived  from  the  import  of  that  article,  notwithstanding  the 
computed  exchange  was  one  per  cent,  against  us.  In  this  case,  the 
merchant  must  give  a  premium  of  one  per  cent,  for  the  foreign  bUl,  to 
pay  for  the  bullion :  £100  worth  of  bullion  at  Hamburg  would  therefore 
cost  him  £101,  and  the  charges  of  importation  would  increase  the  sum 
to  £104.  Upon  the  subsequent  sale,  then,  for  £105  of  depreciated  cur- 
rency in  the  home  market,  he  would  derive  from  the  transaction  a  profit 
of  £1.  This  sum  is  precisely  the  difference  between  the  real  exchange 
and  the  expenses  of  transit,  that  part  of  the  computed  exchange  which 
depends  on  the  nominal  producing  no  effect ;  since  whatever  is  lost  by 
its  unfavorable  state  is  counterbalanced  by  a  corresponding  inequality  of 
nominal  prices."  (Observations,  etc.,  p.  91.)  In  the  same  manner  it  may 
be  shown,  that,  though  the  computed  be  favorable,  the  real  exchange  may 
be  unfavorable ;  and  that,  consequently,  it  might  be  really  advantageous 
to  export,  when  it  is  apparently  advantageous  to  import.  But  it  would  be 
tedious  to  multiply  instances,  which,  as  the  intelligent  reader  will  readily 
conceive,  may  be  infinitely  varied,  and  which  have  been  sufficiently  ex- 
plained. 

The  real  cause  of  the  extraordinary  importation  of  British  produce  into 
the  Continent  in  1809,  1810,  etc.,  notwithstanding  the  anti-commercial  sys- 
tem of  Napoleon,  is  to  be  found,  not  in  the  state  of  the  exchange  ;  for,  inas- 
much as  that  was  occasioned  by  a  fall  in  the  value  of  the  currency,  it  could 
have  no  effect  whatever,  either  in  increasing  or  diminishing  exportation  ; 
but  in  the  annihilation  of  the  neutral  trade  and  our  monopoly  of  the  commerce 
of  the  world.  The  entire  produce  of  the  east  and  west  was  placed  at  our 
disposal.  The  continental  nations  could  neither  procure  colonial  produce 
nor  raw  cotton  for  the  purposes  of  manufacturing,  except  directly  from  Eng- 


62  Essay  on  Exchange. 

land.  British  merchandise  was  thus  rendered  almost  indispensable ;  and  to 
this  our  immense  exportation,  in  spite  of  all  prohibitions  to  the  contrary,  is 
to  be  ascribed.  (See  Edinburgh  Review,  No.  Ixiii.  p.  50.) 


CHAPTER  V. 


NEGOTIATION    OF   BILLS    OF   EXCHANGE. 

In  conducting  the  business  of  exchange,  a  direct  remittance  is  not  always 
preferred.  When  a  merchant  in  London,  for  example,  means  to  discharge 
a  debt  due  by  him  hi  Paris,  it  is  his  business  to  ascertain,  not  only  the 
state  of  the  direct  exchange  between  London  and  Paris,  and,  conse- 
quently, the  sum  which  he  must  pay  in  London  for  a  bill  on  Paris 
equivalent  to  his  debt,  but  also  the  state  of  the  exchange  between  London 
and  Hamburg,  Hamburg  and  Paris,  etc. ;  for  it  frequently  happens  that 
it  will  be  more  advantageous  for  him  to  buy  a  bill  on  Hamburg,  Amster- 
dam, or  Lisbon,  and  to  direct  his  agent  to  invest  the  proceeds  in  a  bill  on 
Paris,  rather  than  remit  directly  to  the  latter.  This  is  termed  the 
ARBITRATION  of  exchange.  An  example  or  two  will  suffice  to  show 
the  principle  on  which  it  is  conducted. 


Arbitration  of  Exchange. 

Thus,  if  the  exchange  between  London  and  Amsterdam  be  35s.  Flemish 
per  pound  sterling,  and  between  Paris  and  Amsterdam  Is.  6d.  Flemish  per 
franc,  then  hi  order  to  ascertain  whether  a  direct  or  indirect  remittance  to 
Paris  would  be  most  advantageous,  we  must  calculate  what  would  be  the 
value  of  the  franc  in  English  money  if  the  remittance  were  made  through 
Holland ;  for,  if  it  be  less  than  that  resulting  from  the  direct  exchange,  it 
will  obviously  be  the  preferable  mode  of  remitting.  This  is  determined 
by  stating,  as  35s.  Flem.  (the  Amsterdam  currency  in  a  pound  sterling) 
:  Is.  6d.  Flem.  (Amsterdam  currency  in  a  franc)  :  :  £1  :  lOd.  the  propor- 
tional or  arbitrated  value  of  the  franc.  Hence  if  the  English  money  or 
bill  of  exchange,  to  pay  a  debt  in  Paris,  were  remitted  by  Amsterdam,  it 
would  require  lOd.  to  discharge  a  debt  of  a  franc,  or  l£  to  discharge  a 
debt  of  24  francs :  and,  therefore,  if  the  exchange  between  London  and 
Paris  were  at  twenty-four,  it  would  be  indifferent  to  the  English  merchant 
whether  he  remitted  directly  to  Paris,  or  indirectly  via  Amsterdam ;  but 
if  the  exchange  between  London  and  Paris  were  above  twenty-four,  then  a 
direct  remittance  would  be  preferable ;  while  if,  on  the  other  hand,  the 
direct  exchange  were  less  than  twenty-four,  the  indirect  remittance  ought 
as  plainly  to  be  preferred. 

"  Suppose,"  to  borrow  an  example  from  Dr.  Kelly  (  Universal  Cambist, 
vol.  ii.  p.  137),  "  the  exchange  of  London  and  Lisbon  to  be  at  68d.  per 
milree,  and  that  of  Lisbon  on  Madrid  500  rees  per  dollar,  the  arbitrated 


Negotiation  of  Bills.  63 

price  between  London  and  Madrid  is  34d.  sterling  per  dollar  ;  for  as  1000 
rees :  68d. : :  500  rees  :  34d.  But  if  the  direct  exchange  of  London  on 
Madrid  be  35d.  sterling  per  dollar,  then  London,  by  remitting  directly  to 
Madrid,  must  pay  35d.  for  every  dollar ;  whereas,  by  remitting  through 
Lisbon,  he  will  pay  only  34d. ;  it  is,  therefore,  the  interest  of  London  to 
remit  indirectly  to  Madrid  through  Lisbon.  On  the  other  hand,  if  London 
draws  directly  on  Madrid,  he  will  receive  35d.  sterling  per  dollar  ;  whereas, 
by  drawing  indirectly  through  Lisbon,  he  would  receive  only  34d. ;  it  is, 
therefore,  the  interest  of  London  to  draw  directly  on  Madrid.  Hence,  the 
following  rules :  — 

"  1.  Where  the  certain  price  is  given,  draw  through  the  place  which 
produces  the  lowest  arbitrated  price,  and  remit  through  that  which  pro- 
duces the  highest. 

"  2.  Where  the  uncertain  price  is  given,  draw  through  that  place  which 
produces  the  highest  arbitrated  price,  and  remit  through  that  which  pro- 
duces the  lowest." 

In  COMPOUND  ARBITRATION,  or  when  more  than  three  places  are 
concerned,  then,  in  order  to  find  how  much  a  remittance  passing  through 
them  all  will  amount  to  in  the  last  place,  or,  which  is  the  same  thing,  to 
find  the  arbitrated  price  between  the  first  and  the  last,  we  have  only  to 
repeat  the  different  statements,  in  the  same  manner  as  in  the  foregoing  ex- 
amples. 

Thus,  if  the  exchange  between  London  and  Amsterdam  be  35s.  Flem. 
for  £1  sterling;  between  Amsterdam  and  Lisbon  42d.  Flem.  for  1  old 
crusade  ;  and  between  Lisbon  and  Paris  480  rees  for  3  francs,  what  is  the 
arbitrated  price  between  London  and  Paris  ? 

In  the  first  place,  as  35s.  Flem. :  £1  : :  42d.  Flem. :  2s.  sterling,  =  1  old 
crusade. 

Second,  as  1  old  crusade,  or  400  rees  :  2s.  sterling : :  480  rees  :  2s.  4|d. 
sterling,  =  3  francs. 

Third,  as  2s.  4i  sterling  :  3  francs  : :  £1  sterling  :  25  francs  the  arbi- 
trated price  of  the  pound  sterling  between  London  and  Paris. 

This  operation  may  be  abridged  as  follows  :  — 

£1  sterling. 

£1  sterling  ==        35s.  Flemish. 

3i  shillings  Flem.      —        1  old  crusade. 
1  old  crusade  =        400  rees. 

480  rees  ==        3  francs. 

35  X  400  X  3       4200 

Hence =  25  francs. 

480  X  34  =  168 

This  abridged  operation  evidently  consists  in  arranging  the  terms  so  that 
those  which  would  form  the  divisors  in  continued  statements  in  the  Ride  of 
Three  are  multiplied  together  for  a  common  divisor,  and  the  other  terms 
for  a  common  dividend.  Arithmetical  books  abound  with  examples  of 
such  operations. 

The  following  account  of  the  manner  in  which  a  very  large  transaction 
was  actually  conducted,  by  indirect  remittances,  will  sufficiently  illustrate 
the  principles  we  have  been  endeavoring  to  explain. 


64  Essay  on  Exchange. 

In  1804,  Spain  was  bound  to  pay  to  France  a  large  subsidy ;  and,  in 
order  to  do  this,  three  distinct  methods  presented  themselves  :  — 

1.  To  send  dollars  to  Paris  by  land. 

2.  To  remit  bills  of  exchange  directly  to  Paris. 

3.  To  authorize  Paris  to  draw  directly  on  Spain. 

The  first  of  these  methods  was  tried,  but  it  was  found  too  slow  and  ex- 
pensive ;  and  the  second  and  third  plans  were  considered  likely  to  turn  the 
exchange  against  Spain.  The  following  method  by  the  indirect  or  circular 
exchange  was  therefore  adopted. 

A  merchant,  or  banquier,  at  Paris,  was  appointed  to  manage  the  opera- 
tion, which  he  thus  conducted :  He  chose  London,  Amsterdam,  Hamburg, 
Cadiz,  Madrid,  and  Paris,  as  the  principal  hinges  on  which  the  operation 
was  to  turn ;  and  he  engaged  correspondents  in  each  of  these  cities  to  sup- 
port the  circulation.  Madrid  and  Cadiz  were  the  places  in  Spain  from 
whence  remittances  were  to  be  made  $  and  dollars  were,  of  course,  to  be 
sent  to  where  they  bore  the  highest  price,  for  which  bills  were  to  be  pro- 
cured on  Paris,  or  on  any  other  places  that  might  be  deemed  more  advan- 
tageous. 

The  principle  being  thus  established,  it  only  remained  to  regulate  the 
extent  of  the  operation,  so  as  not  to  issue  too  much  paper  on  Spain, 
and  to  give  the  circulation  as  much  support  as  possible  from  real  busi- 
ness. With  this  view,  London  was  chosen  as  a  place  to  which  the  opera- 
tion might  be  chiefly  directed,  as  the  price  of  dollars  was  then  high  in 
England,  a  circumstance  which  rendered  the  proportional  exchange  advan- 
tageous to  Spain. 

The  business  was  commenced  at  Paris,  where  the  negotiation  of  drafts 
issued  on  Hamburg  and  Amsterdam  served  to  answer  the  immediate 
demands  of  the  state  ;  and  orders  were  transmitted  to  these  places  to  draw 
for  the  reimbursements  on  London,  Madrid,  or  Cadiz,  according  as  the 
course  of  exchange  was  most  favorable.  The  proceedings  were  all  con- 
ducted with  judgment  and  attended  with  complete  success.  At  the  com- 
mencement of  the  operation,  the  course  of  exchange  of  Cadiz  on  London 
was  36d. ;  but,  by  the  plan  adopted,  Spain  got  39^d.,  or  above  eight  per 
cent.,  by  the  remittance  of  dollars  to  London,  and  considerable  advantages 
were  also  gained  by  the  circulation  of  bills  through  the  several  places  on 
the  Continent.  (Kelly's  Cambist,  vol.  ii.  p.  168;  Dubost's  Elements  of 
Commerce,  2d  edit.,  p.  218. 

Usance  Days  of  Grace. 

Bills  of  exchange  are  made  payable  at  sight ;  —  at  a  certain  specified 
time  after  sight,  or  after  date ;  —  or  at  usance,  which  is  the  usual  term 
allowed  by  the  custom  or  law  of  the  place  where  the  bill  is  payable. 
Generally,  however,  a  few  days  are  allowed  for  payment  beyond  the  term 
when  the  bill  becomes  due,  which  are  denominated  days  of  grace,  and 
which  vary  in  different  countries.  In  Great  Britain  and  Ireland,  three 
days  of  grace  are  allowed  for  all  bills  except  those  payable  at  sight,  which 
must  be  paid  as  soon  as  presented. 

The  following  is  a  statement  of  the  usance  and  days  of  grace  for  bills 
drawn  by  London  on  some  of  the  principal  commercial  cities. 


History  and  Advantages  of  Bitts  of  JExchange. 


65 


[m\}d.  m\\s.  <f|0.  «f||s.  rf||a.  respectively  denote  months  after  date,  months  after  sight,  days  after 
date,  days  after  sight,  days  after  acceptance. 


London  on 

Usance.    Days  Grace. 

London  on 

Usance.  Days  Grace. 

Amsterdam, 

1  m||d. 

6 

Gibraltar, 

2  m||s. 

14 

Rotterdam, 

1  mild. 

6 

Leghorn, 

3m||d. 

0 

Antwerp, 

1  m||d. 

6 

Leipsic, 

14  d||a. 

0 

Hamburg, 

1  m||d. 

12 

Genoa, 

3  m||d. 

30 

Altona, 

1  m||d. 

12 

Venice, 

3  m[|d. 

6 

Dantzic, 

14d||a. 

10 

Vienna, 

14  d||a. 

3 

Paris, 

30  d||d. 

10 

Malta, 

30  d||d. 

13 

Bourdeaux, 

30  d||d. 

10 

Naples, 

3m||d- 

3 

Bremen, 

lm||d. 

8 

Palermo, 

3  m  .  1. 

0 

Barcelona, 

60  d||d. 

14 

Lisbon, 

30  d||s. 

6 

Geneva, 

30  d||d. 

5 

Oporto, 

30  d||s. 

6 

Madrid, 

2m[js. 

14 

Rio  Janerio, 

30d||d. 

6 

Cadiz, 

60  -Id. 

6 

Dublin, 

21  d||s. 

3 

Bilboa, 

2  m|ld. 

14 

Cork, 

21  d||s. 

3 

In  France,  no  days  of  grace  are  allowed  on  bills  payable  a  vue. 
In  Austria,  bills  payable  at  sight,  or  on  demand,  or  at  less  than  seven  days  after 
sight  or  date,  are  not  allowed  any  days  of  grace. 

In  the  dating  of  bills,  the  new  style  is  now  used  in  every  country  in 
Europe  with  the  exception  of  Russia. 

In  London,  bills  of  exchange  are  bought  and  sold  by  brokers,  who  go 
round  to  the  principal  merchants,  and  discover  whether  they  are  buyers  or 
sellers  of  bills.  A  few  of  the  brokers  of  most  influence,  after  ascertaining 
the  state  of  the  supply  and  demand  for  bills,  suggest  a  price  at  which  the 
greater  part  of  the  transactions  of  the  day  are  settled,  with  such  deviations 
as  particular  bills,  from  their  being  in  very  high  or  low  credit,  may  be  sub- 
ject to.  The  price  fixed  by  the  brokers  is  that  which  is  published  in 
Wettenhall's  list ;  but  it  is  stated  by  Mr.  Goldsmid,  that  the  first  houses 
generally  negotiate  their  bills  on  a  half,  one,  one  and  a  half,  and  two  per 
cent,  better  terms  than  those  quoted.  In  London,  and  other  great  commer- 
cial cities,  a  class  of  middlemen  speculate  largely  on  the  rise  and  fall  of 
the  exchange,  buying  bills  when  they  expect  a  rise,  and  selling  them  when 
a  fall  is  anticipated. 


CHAPTER  VI. 


HISTORY   AND   ADVANTAGES    OF  BILLS    OF   EXCHANGE. 

IT  is  not  easy  to  discover  the  precise  era  when  bills  of  exchange  were  first 
employed  to  transfer  and  adjust  the  mutual  claims  and  obligations  of  mer- 
chants. Their  invention  has  been  ascribed  to  the  Arabians  and  the  Jews  of 
the  Middle  Ages ;  but  it  seems  certain  that  bills  were  in  use  in  remote 


66  Essay  on  Exchange. 

antiquity.  Isocrates  states  that  a  stranger  who  brought  some  cargoes  of 
corn  to  Athens,  furnished  a  merchant  of  the  name  of  Stratocles  with  an 
order  or  bill  of  exchange,  on  a  town  on  the  Pontus  Euxinus,  where  money 
was  owing  to  him  ;  and,  because  the  person  who  had  drawn  the  bill  had  no 
•fixed  domicile,  Stratocles  was  to  have  recourse  on  a  merchant  in  Athens,  in 
the  event  of  its  being  protested.  The  merchant,  says  Isocrates,  who  pro- 
cured this  order,  found  it  extremely  advantageous,  inasmuch  as  it  enabled 
him  to  avoid  risking  his  fortune  on  seas  covered  with  pirates  and  the  hostile 
squadrons  of  the  Lacedaemonians.  (De  Pauw,  Recherches  sur  les  Grecs, 
i.  258.) 

There  is  also  unquestionable  evidence  to  show  that  the  method  of  trans- 
ferring and  cancelling  the  debts  of  parties  residing  at  a  distance,  by  means 
of  letters  of  credit,  or,  which  is  in  effect  the  same  thing,  by  means  of  bills 
of  exchange,  was  not  unknown  to  the  Romans.  Cicero,  in  one  of  his 
epistles  to  Atticus  (Epist.  ad  Atticum,  xii.  24,)  inquires  whether  his  son 
must  carry  cash  to  defray  the  expense  of  his  studies  along  with  him  to 
Athens,  or  whether  he  might  not  save  this  trouble  and  expense  by  obtaining 
an  assignment  for  an  equivalent  sum  from  a  creditor  in  Rome  on  Ids 
debtor  there.  It  is  evident,  from  a  subsequent  epistle  of  Cicero's,  that  the 
latter  method  had  been  preferred,  and  that  the  transference  of  the  money 
had  in  consequence  been  rendered  unnecessary.  (Epist.  ad  Atticum,  xii. 
27.)  "  De  Cicerone,  ut  scribis,  ita  faciam :  ipsi  permittan  de  tempore : 
nummorum  quantum  opus  erit  ut  permutetur  tu  videbis."  In  his  notes  on 
a  parallel  passage,  Graevius  remarks,  Permutatio  est  quod  mine  barbare 
cambium  dicitur.  (Epist.  ad  Atticum,  xi.  24.) 

Mr.  Macpherson  states  (Annals  of  Commerce,  i.  p.  405),  that  the  first 
mention  of  bills  of  exchange  in  modern  history  occurs  in  1255.  The  pope 
having  quarrelled  with  Manfred,  king  of  Sicily,  engaged,  on  Henry  III.  of 
England  agreeing  to  indemnify  him  for  the  expense,  to  depose  Manfred,  and 
raise  his  second  son  Edmund  to  the  Sicilian  throne.  The  enterprise  misgave. 
But  the  merchants  of  Sienna  and  Florence,  who  originally  advanced  the 
money  to  carry  it  into  effect,  or  rather  to  gratify  the  pope's  rapacity,  were 
paid  by  bills  of  exchange  drawn  on  the  Prelates  of  England,  who,  although 
they  protested  they  knew  nothing  at  all  about  the  transaction,  were  never- 
theless compelled,  under  pain  of  excommunication,  to  pay  the  bills  and 
interest ! 

Capmany,  in  his  Memoirs  respecting  the  Commerce,  etc.  of  Barcelona, 
gives  a  copy  of  an  ordonnance  of  the  magistracy,  dated  in  1394,  enacting 
that  bills  should  be  accepted  within  twenty-four  hours  after  their  presenta- 
tion ;  —  a  sufficient  proof  that  they  were  in  general  use  in  the  beginning  of 
the  fourteenth  century. 

But  whatever  be  the  era  of  the  introduction  of  bills  of  exchange,  very  few 
inventions  have  redounded  more  to  the  general  advantage.  "Without  this 
simple  and  ingenious  contrivance,  commerce  could  not  have  made  any  con- 
siderable progress.  Had  there  been  no  means  of  settling  and  adjusting  the 
mutual  claims  of  debtors  and  creditors  otherwise  than  by  the  intervention  ot 
metallic  money  (for  bank  paper  is  only  another  species  of  bills  of  exchange), 
a  very  great  proportion  —  many  hundreds  of  millions  —  of  that  capital  which 
is  now  setting  productive  labor  in  motion  in  every  quarter  of  the  globe,  and 
ministering  to  the  wants  and  the  enjoyments  of  mankind,  must  have  been 


History  of  Bills  of  Exchange.  G7 

devoted  to  the  expediting  those  exchanges  which  are  much  better 
accomplished  by  the  agency  of  a  few  quires  of  paper.  Instead  of  a 
perpetual  importation  and  exportation  of  gold  and  silver,  necessarily 
attended  by  an  immensity  of  trouble  and  expense,  a  few  bills  of  ex- 
change, possessing  little  or  no  intrinsic  worth,  and  which  may  be  transfer- 
red with  the  utmost  facility,  suffice  to  adjust  the  most  extensive  and  com- 
plicated transactions.  But  the  mere  setting  free  of  an  immense  pro- 
ductive power,  engaged  hi  a  comparatively  disadvantageous  employment, 
is  only  one  of  the  many  benefits  we  owe  to  the  use  of  bills  of  exchange. 
By  cheapening  the  instruments  by  which  commerce  is  carried  on, 
they  have  materially  reduced  the  prices  of  most  commodities;  and  have, 
in  consequence,  increased  the  command  of  all  classes  over  the  necessaries 
and  luxuries  of  life,  and  accelerated  the  progress  of  civilization,  by 
occasioning  a  much  more  extensive  intercourse  and  intimate  connection 
between  different  and  independent  countries,  than  could  otherwise  have 
taken  place. 

In  a  political  point  of  view,  their  effects  have  been  equally  salutary. 
They  enable  every  individual  imperceptibly  to  transfer  his  fortune  to  other 
countries,  and  to  preserve  it  safe  alike  from  the  rapacity  of  his  own  govern- 
ment and  the  hostile  attacks  of  others.  The  security  of  property  has,  in 
consequence,  been  prodigiously  augmented.  And  though  we  should  concede 
to  the  satirist  that  paper  credit  "  has  lent  corruption  lighter  wings  to  fly,"* 
it  is  easy  to  show  that  it  has  powerfully  contributed  to  render  subjects  less  de- 
pendent on  the  policy,  and  less  liable  to  be  injuriously  affected  by  injudicious 
measures,  on  the  part  of  their  rulers.  In  countries  in  a  low  stage  of  civiliza- 
tion, the  inhabitants  endeavor,  by  burying  all  the  gold  and  silver  they  can 
collect,  to  preserve  a  part  of  their  property  from  the  despots  by  whom  they 
are  alternately  plundered  and  oppressed.  This  was  universally  the  case  hi 
the  Middle  Ages  ;  and  in  Turkey,  India,  Persia,  and  other  eastern  countries, 
the  practice  is  still  carried  on  to  a  very  great  extent.  Some  economists  have 
endeavored  to  account  for  the  long-continued  importation  and  high  value  of 
the  precious  metals  in  India,  by  the  loss  which  necessarily  attends  the 
practice  of  hoarding;  and  undoubtedly  this  locking  up  of  capital  is  one  of 
the  main  causes  of  the  extreme  poverty  of  these  countries.  But  the  secur- 
ity afforded  by  bills  of  exchange  is  infinitely  greater  than  any  derived 
from  the  barbarous  expedient  of  trusting  property  to  the  bosom  of  the 
earth.  "  Pregnant  with  thousands  flits  the  scrap  unseen,"  and  in  a  mo- 
ment places  the  largest  fortune  beyond  the  reach  of  danger.  Mr.  Harris 
was,  therefore,  right  in  saying,  "  that  the  introduction  of  bills  of  'exchange 
was  the  greatest  security  to  merchants,  both  as  to  their  persons  and  ef- 
fects, and  consequently  the  greatest  encouragement  to  commerce,  and  the 

*  Blest  paper  credit !  last  and  best  supply ! 
That  lends  corruption  lighter  wings  to  fly ! 
Gold  imp'd  by  thee  can  compass  hardest  things, 
Can  pocket  states,  can  fetch  or  carry  kings  ; 
A  single  leaf  shall  waft  an  army  o'er, 
Or  ship  off  senates,  to  some  distant  shore ; 
A  leaf,  like  SibylPs,  scatter  to  and  fro 
Our  fates  and  fortunes,  as  the  wind  shall  blow ; 
Pregnant  with  thousands  flits  the  scrap  unseen, 
And  silent  sells  a  king,  or  buys  a  queen. — POPE. 


68  Essay  on  Exchange. 

greatest  blow  to  despotism,  of  anything  that  ever  was  invented."     (Harris 
on  Coins,  part  i,  p.  108.) 

Previously  to  the  peace  of  Paris  in  1763,  Amsterdam,  because  of  its 
commerce,  the  wealth  and  punctuality  of  its  merchants,  and  their  intimate 
connection  with  all  the  other  great  trading  cities  of  the  world,  was  the 
chief  place  where  the  accounts  of  the  different  commercial  countries 
were  balanced  and  adjusted.  But  the  entire  loss  of  foreign  trade  and  the 
other  vexations  to  which  Holland  was  subjected  during  the  ascendency  of 
the  French,  nearly  divested  Amsterdam  of  all  share  in  this  business. 
London  has  now  become  the  trading  metropolis  of  Europe,  and  of  the 
world.  The  vast  extent  of  its  commercial  dealings  has  necessarily  ren- 
dered it  the  great  mart  for  bills  of  exchange.  Its  bill  merchants,  a 
class  of  men  remarkable  for  their  shrewdness,  and  generally  possessed  of 
large  capitals,  assist  in  trimming  and  adjusting  the  balance  of  debt  and 
credit  between  the  most  remote  countries.  They  buy  up  bills  where  they 
are  cheap,  and  sell  them  where  they  are  dear ;  and,  by  the  extent  of  their 
correspondence  and  the  magnitude  of  their  transactions,  give  a  steadiness 
to  the  exchange  which  it  could  not  otherwise  attain. 


CHAPTER  VIL 


LAWS   AND    CUSTOMS   RESPECTING   BILLS   AND    NOTES. 

A  Bill  of  Exchange  may  be  defined  to  be  an  open  letter  of  request  or 
order  from  one  person,  the  drawer,  to  another  person,  the  drawee,  who 
is  thereby  desired  to  pay  a  sum  of  money,  therein  specified,  to  a  third 
person,  the  payee.  When  the  drawee  obeys  the  request  or  order,  by 
subscribing  the  document,  he  becomes  acceptor.  If  the  contrary  do 
not  appear  on  the  face  of  the  bill,  it  is  presumed  that  the  drawee 
has  funds  of  the  drawer's  in  his  hands  to  the  amount  of  the  bill,  and 
that  the  drawer  is  indebted  to  the  payee  to  that  extent.  The  bill  thus 
operates  as  a  transfer  or  mercantile  assignment  to  the  payee,  of  the 
drawee's  debt  to  the  drawer.  But  a  bill  may  also  be  drawn  payable 
to  the  drawer  or  his  order,  in  which  case,  when  accepted,  the  document  is 
not  an  assignment,  but  merely  the  acknowledgment  or  constitution  of  a 
debt.  This  is  also  accomplishable  by  promissory  note,  which  is  a  promise  by 
one  person,  the  maker  (Scotice  granler),  to  pay  a  sum  to  another  person, 
the  payee  (Scotice  grantee).  The  bill  and  the  promissory  note  have  now 
equally  the  privilege  of  being  assignable  or  transferable  from  one  person  to 
another  by  indorsement,  that  is,  by  the  payee  subscribing  his  name  on  the 
back  of  the  document.  In  this  case  the  payee  becomes  an  indorser,  and  the 
person  in  whose  favor  the  indorsement  is  made  is  called  the  indorsee,  who 
may  again  indorse  to  another ;  and  in  this  manner  the  bill  or  note  may  pass 
from  hand  to  hand  without  limitation.  Each  indorsation  may  be  made  in 


Requisites  of  a  BiU,  or  Note. 


69 


full  or  in  blank  ;  in  full,  by  filling  up  the  name  and  description  of  the  party 
in  whose  favor  it  is  made,  which  is  attended  with  several  advantages  if 
the  document  should  be  lost  or  stolen ;  in  blank,  by  merely  subscribing  the 
indorser's  name,  which  is  equivalent  to  making  it  payable  to  the  bearer. 
All  the  indorsements,  or  any  one  of  them,  may  also  be  qualified  by  the 
words  without  recourse  ;  and  when  this  is  done,  neither  the  indorsee  nor 
any  subsequent  holder  of  the  bill  or  note  can  have  recourse  on  the  indorser 
who  thus  qualifies  his  indorsation.  If  none  of  the  indorsations  be  so  qual- 
ified, the  last  holder  for  value,  and  in  bona  fide,  has  all  the  prior  indorsers 
and  other  parties  to  the  bill  or  note  bound  to  him  jointly  and  severally. 
He  may  select  any  one  of  them,  or  proceed  against  them  all  at  the  same 
time  ;  and  if  all  were  to  become  bankrupt,  he  could  claim  on  the  estate 
of  each  for  the  whole  debt,  and  be  entitled  to  receive  dividends  from 
all  the  estates  until  he  obtain  full  payment,  but  which  he  must  not  ex- 
ceed. An  indorser  may  also  qualify  his  indorsation  by  the  condition 
that  his  indorsee  shall  not  have  the  power  of  making  an  indorsement  from 
himself. 

From  the  negotiability  thus  conferred  upon  them,  bills  have  been  com- 
pared to  bags  of  money ;  but  it  should  be  remembered  that,  in  the  former 
case,  we  transfer  only  a  right,  in  the  latter  the  property  itself.  The  com- 
parison is  best  supported  in  those  transferances,  which  are  made  without 
recourse,  since,  in  those  instances,  the  bill  passes  from  hand  to  hand  with- 
out any  alteration  in  the  rights  and  duties  of  those  interested  in  it,  and 
without  any  one  acquiring  an  additional  security.  In  the  simplest  case, 
however,  the  rights  arising  on  a  bill  may  be  preserved  or  lost  by  the  con- 
duct of  the  holder ;  and  where  there  has  been  even  one  unqualified  in- 
dorsation, the  duties  of  the  holder  are  of  a  delicate  and  important  nature. 
But  these  will  be  more  readily  understood  after  we  have  pointed  out  the 
requisites  of  a  bill. 

Requisites  of  a  Bill,  or  Note. 

The  general  requisites  of  a  bill  are,  that  it  must  be  payable  at  all  events ; 
that  it  must  be  for  payment  of  money  only ;  and  that  the  money  must  not 
be  payable  from  any  particular  fund.  Of  the  more  special  requisites,  the 
first  is,  that  any  bill  or  note  drawn  or  made  in  Great  Britain  (though  dated 
abroad,  Chitty,  5th  edit.,  p.  70,  7.  T.  R.,  601,  4  Camp.  Law,  266),  or  in 
its  colonies,  is,  that  it  be  written  on  paper  stamped  according  to  the  law  of 
the  mother  country  or  colony,  as  it  happens  to  be  drawn  in  the  one  or  the 
other.  The  stamp  duty  varies  according  to  the  sum  in  the  bill,  and  the 
extension  of  the  term  of  payment ;  but  for  these  particulars,  and  the  mode 
of  complying  with  the  provisions  of  the  law,  reference  should  be  made  to 
the  statutes  in  force  at  the  time.  The  present  regulating  statute  is  that  of 
55  Geo.  III.  c.  184,  both  as  to  inland  bills  and  notes,  and  bills  of  exchange 
drawn  here  on  foreign  countries.  As  to  bills  truly  drawn  in  foreign  states, 
not  colonies  of  Great  Britain,  on  traders  in  this  country,  our  law  takes  no 
cognizance  of  them  as  to  whether  they  are  or  are  not  stamped ;  but  prom- 
issory notes  made  out  of  Britain,  are  declared  not  to  be  negotiable  or  pay- 
able unless  stamped  agreeably  to  our  laws.  Bills  drawn  at  home  must  also 
be  written  on  a  stamp  appropriated  for  bills.  If  on  a  stamp  of  another 


70  Essay  on  Exchange. 

denomination,  though  of  equal  or  superior  value  they  are  invalid  if  not  got 
restamped,  which  they  may  be  for  payment  of  the  duty  and  a  penalty  of 
40s.  when  carried  to  the  stamp-office  before  they  are  due,  but  when  after 
due,  the  penalty  is  £10.  If  written  on  a  stamp  below  the  proper  value,  a 
penalty  is  incurred  of  £50,  and  the  bills,  besides,  are  nidi  (Bell's  Com.  on 
Bankrupt  Law,  vol.  ii.  p.  249)  ;  but  it  has  been  found  with  us  in  England, 
that  if  a  bill  be  not  properly  stamped,  a  neglect  to  present  for  acceptance 
or  payment  will  not  relieve  parties  who  are  otherwise  liable  in  the  original 
debt  in  respect  of  which  the  bill  was  granted.  The  relief  in  this  case  is 
granted  by  a  court  of  equity,  but  this  relief  is  not  extended  to  remote  in- 
dorsers  not  responsible  for  the  original  debt.  Relief,  however,  is  given 
when  a  party  has  bound  himself  to  grant  a  valid  note  or  bill,  but  gives 
one  by  mistake  or  design  on  a  defective  stamp.  Negotiable  bills  under  £5 
must,  by  37  Geo.  III.  c.  32,  be  payable  within  twenty-one  days,  and  bear  the 
name  of  the  place  where  they  are  made,  without  which  also  checks  on  bank- 
ers are  liable  to  stamp-duty.  Penalties  are  likewise  imposed  on  the  post- 
dating of  such  checks,  or  of  bills,  for  the  purpose  of  reducing  the  duty  by 
apparently  shortening  the  term  of  payment ;  and  there  are  provisions  in 
those  laws  respecting  bills  drawn  in  sets  or  otherwise,  with  which  every 
trader  should  make  himself  acquainted.  This,  however,  it  is  very  difficult  to 
do  in  all  its  bearings,  since  the  penalties  and  provisions  of  the  prior 
statutes  are  retained  in  every  subsequent  one,  except  as  therein  specially 
altered.  This  is  one  great  evil  of  our  fiscal  regulations.  Where  the 
law  cannot  be  known,  transactions  are  rendered  uncertain,  property  inse- 
cure, and  litigation  is  increased  to  a  mischievous  extent.  But  the  worst 
evil  is,  that  this  state  of  law  increases  in  a  prodigious  degree  the  influence 
of  the  crown,  by  the  power  over  traders  which  is  thus  placed  in  the  hands 
of  solicitors  of  stamps,  excise,  customs,  and  other  crown  officers. 

The  other  requisites  of  a  bill,  are  2dly,  That  it  should  bear  the  name 
of  the  place  at  which  it  is  made  or  drawn  ;  and  if  the  street  and  number 
of  the  house  be  added,  it  is  easier  to  give  and  receive  the  notices  that  may 
be  necessary,  in  proper  time.  3dly.  The  date  should  be  distinctly  marked, 
and,  if  written  at  length,  a  higher  protection  would  be  afforded  against  acci- 
dental or  intentional  alterations  and  vitiations.  If  a  bill  have  no  date,  the 
date  of  issuing  will  be  held  as  the  date  of  the  bill.  &thly,  The  time  of  pay- 
ment should  be  clearly  expressed,  and  a  time  certain  is  necessary  to  make 
the  document  negotiable  ;  that  is  to  say,  the  payment  must  not  depend  on 
an  event  that  may  never  happen,  such  as  the  marriage  of  a  person,  though 
it  may  on  the  death.  5My,  The  place  at  which  a  bill  is  made  payable 
should  also,  for  the  sake  of  safe  negotiation,  be  distinctly  stated  ;  because 
at  that  place  presentment  must  be  made  both  for  acceptance  and  payment. 
If  no  place  be  mentioned,  the  place  of  doing  business,  if  the  acceptor  have 
one,  or  otherwise  his  dwelling-house,  becomes  the  place  of  presentment. 
Gthly,  The  sum  payable  should  be  clearly  written  in  the  body  of  the  bill, 
and  the  superscription  of  the  sum  in  figures  will  aid  an  omission  in  the 
body.  This  sum  must  in  all  cases  be  above  20s.;  and  if  payable  more  than 
twenty-one  days  after  date,  it  must  exceed  £5.  Ithly,  It  should  contain 
an  order  or  request  to  pay.  Sthly,  Of  bills  drawn  in  parts  or  sets,  each  part 
or  copy  should  mention  the  number  of  copies  used,  and  be  made  payable 
on  condition  that  none  of  the  others  has  been  paid.  The  forgery  of  an 


Requisites.  71 

indorsement  on  one  of  the  parts  passes  no  interest,  even  to  a  bona  fide 
holder,  and  will  not  prevent  the  payee  from  recovering  on  the  other  part. 
$thly,  Every  bill  should  specify  distinctly  to  whom  the  contents  are  to  be 
paid ;  but  a  bona  fide  holder,  or  his  executor,  may  fill  up  a  blank,  if  one  be 
left,  for  the  name  of  the  payee,  and  recover  payment.  (Chitty,  82  ;  Bell, 
vol.  ii.  p.  251,  etc.)  Wtkly,  If  it  be  intended  that  a  bill  is  to  be  negotiable, 
it  should  contain  the  operative  words  of  transfer  "  to  order  ; "  although  if 
the  original  intention  be  clear,  these  words  may  be  inserted  without  a 
fresh  stamp.  (Chitty,  86.)  llthly,  It  is  advisable  in  all  cases  to  insert 
value  received ;  since,  without  these  words,  the  holder  of  an  inland  bill  for 
upwards  of  £20  could  not,  in  England,  recover  interest  and  damages 
against  the  drawer  and  indorser  in  default  of  acceptance  or  payment. 
Bills  bearing  for  value  received,  and  payable  after  date,  seem  also  to  pos- 
sess advantages  when  lost,  under  the  statutes  9  and  10  W.  III.  c.  17 ;  but 
equity  would  probably  extend  these  to  indorsements ;  and  3  and  4  Anne,  c. 
9,  it  is  thought,  extends  the  same  to  notes.  (Chitty,  p.  196.)  12thly,  As  to 
foreign  bills,  the  drawee  should  attend  to  whether  they  are  to  be  paid  with  or 
without  further  advice;  since  the  propriety  of  his  accepting  or  paying  will, 
in  the  one  ease,  depend  on  his  having  received  advice.  The  more  care- 
fully all  these  requisites  are  attended  to,  the  greater  is  the  security  of  all 
concerned  against  accidents  and  litigation.  But  traders,  we  fear,  have  too 
generally  a  prejudice  in  favor  of  that  brevity  which  approaches  to  loose- 
ness of  expression,  and  against  that  precision  which  alone  can  keep  them 
out  of  difficulties 


General  Explanatory  Rules  and  Usages.  Business  Hours.  Rules  of  giving  Notices.  Ef- 
fect of  Inevitabk  Accident.  How  to  act  when  Bill  lost.  Effect  of  Usury.  Effect  of 
Gaming.  Effect  of  Forgery.  Effect  of  Vitiation.  Acceptance  by  Procuration.  Con- 
ditional Acceptance.  Indorsements. 

When  a  bill,  check,  or  note,  is  payable  on  demand,  or  when  no  time  of 
payment  is  expressed,  it  should  be  presented  within  a  reasonable  time  after 
receipt,  and  is  payable  on  presentment,  without  the  allowance  of  any  days 
of  grace.  It  is  yet  unsettled  (Chitty,  344,  et  seg.)  whether  bills  drawn  at 
sight  are  entitled  to  days  of  grace,  though  the  weight  of  authority  is  rather 
in  favor  of  them.  If  drawn  at  one  or  more  days  after  sight,  the  days  of 
grace  must  be  allowed.  The  day  on  which  a  bill  is  dated  is  not  reckoned 
one  ;  but  all  bills  having  days  of  grace,  become  due,  and  must  be  presented 
and  protested,  on  the  third  day,  and  if  that  day  be  a  Sunday  or  a  holiday, 
on  the  second.  The  rule  for  giving  notice  of  non-acceptance  or  non-pay- 
ment is  different,  since,  if  the  day  on  which  it  should  have  been  given  be 
a  day  of  rest,  by  the  religion  of  the  party,  such  as  the  Jews'  Sabbath,  the 
notices  will  be  good  if  given  on  the  next  day.  Calendar  months  are  always 
understood  with  respect  to  bills ;  and  if  dated  on  the  29th,  30th,  or  31st  of 
January,  payable  one  month  after  date,  they  will  fall  due  on  the  last  day  of 
February,  from  which  the  days  of  grace  are  to  be  calculated.  Presentments 
of  bills  should  be  made  within  business  hours.  These  are  generally  consid- 
ered to  be,  in  London,  from  nine  morning  to  six  evening,  but  a  protest  has 
been  held  good  against  an  ordinary  trader  when  made  at  eight.  This  would 


72  Essay  on  Exchange. 

not  have  been  held  good  in  the  case  of  bankers,  whose  hours  (from  nine  to 
five,  in  London)  must  be  attended  to.  In  Edinburgh,  bankers'  hours  are 
from  ten  to  three  ;  traders  from  ten  to  three,  and  from  six  to  eight ;  but 
there  are  no  Scotch  decisions  holding  these  as  the  only  business  hours.  A 
verbal  notice  of  the  dishonor  of  an  inland  bill  is  good  ;  but  as  such  notice 
is  always  matter  of  parole  evidence,  it  is  better  in  every  case  to  give  notice 
in  writing,  and  the  regular  mode  of  doing  so  is  by  post.  Such  notice,  if  put 
into  the  general  post-office,  or  an  authorized  receiving-house,  is  good  though 
it  miscarry,  provided  the  letter  be  regularly  booked,  and  reasonable  prooi 
be  made  of  its  having  been  put  into  the  post-office.  If  given  only  to  a 
bellman  in  the  street,  it  would  not,  in  such  a  case,  be  good.  When  there 
is  no  post,  the  ordinary  mode  of  conveyance,  such  as  the  first  ship  or  car- 
rier, is  sufficient.  As  to  foreign  bilk,  notices  of  dishonor,  with  the  respec- 
tive protests,  must  be  despatched  by  post  on  the  day  when  the  bills  become 
due,  or  on  which  the  acceptance  was  refused,  if  any  post  or  ordinary  con- 
veyance set  out  that  day,  and  if  not,  by  the  next  earliest  conveyance. 
(Chitty,  291.)  As  to  inland  bills,  notice  should  be  made  by  the  first  post 
after  the  expiry  of  a  day,  when  the  parties  reside  at  a  distance  ;  if  in  the 
same  town,  it  is  enough  if  the  notice  be  made  so  as  to  be  received  within 
business  hours  of  the  following  day,  and  this  may  be  done  by  the  two- 
penny or  penny  post,  if  receivable  within  the  time  mentioned.  When  a 
holder  deposits  his  bill  at  his  banker's,  the  number  of  persons  entitled  to 
notice  is  increased  by  one ;  and  each  party  in  succession  is  entitled  to 
tiventy-four  hours  for  giving  notice.  (6  East.  3  Bell,  263.)  Such  notice, 
as  to  inland  bills,  is  necessary,  in  England,  for  preserving  recourse  as  to 
the  principal  sum  only.  If  protest  be  made  and  notice  given  within  four- 
teen days,  the  recourse  is  preserved  as  to  interest,  damages,  and  expenses. 
In  Scotland,  a  protest  is  necessary  in  every  case,  and  there  is  no  distinction 
made  as  to  the  mode  of  recourse  between  principal  and  interest ;  but 
intimation  to  the  drawer  within  fourteen  days  preserves  recourse  for 
the  whole  (Bell,  vol.  ii.  p.  265)  ;  and  it  has  been  decided,  that  notice  of 
an  indorser  may  be  good  even  after  the  fourteen  days,  if  there  has  been 
no  unnecessary  delay.  (Fac.  Col.  2d  June,  1812.)  But  this  applies  only 
to  inland  bills,  and  a  bill  drawn  from  Scotland  upon  England  is  in  Scot- 
land held  to  be  foreign.  (Bell,  vol.  ii.  p.  365.)  Every  bill  should  be 
presented  for  payment  on  the  day  upon  which  it  falls  due,  unless  that  be 
rendered  impossible  by  some  unforeseen  and  inevitable  accident,  such  as 
shipwreck,  or  sudden  illness,  or  death.  To  preserve  recourse,  the  acci- 
dent, and  the  presentment  of  the  bill  as  soon  as  possible  afterwards,  must 
be  intimated  without  delay,  and,  if  denied,  proved  by  the  party  who  seeks 
recourse.  The  same  doctrine  will  hold  as  to  presentments  for  non- 
acceptance  and  notices  of  dishonor.  But  the  loss  or  destruction  of  a  bill 
is  no  excuse  for  not  demanding  payment  and  protesting ;  the  protest  in 
that  case  being  made  upon  a  copy  or  statement  of  the  bill,  if  the  party 
who  has  a  right  to  hold  the  bill  has  it  in  his  power  to  make  such  a  state- 
ment. If  the  destruction  of  the  bill  can  be  proved,  action  will  be  sustain- 
ed in  a  court  of  law  ;  if  not,  the  redress  is  got  upon  giving  an  indemnity 
in  a  court  of  equity ;  but  as  equity  will  not  interfere  where  law  can,  it  is 
of  importance  in  such  a  case,  and  indeed  in  all  cases  of  difficulty,  to  resort 
at  once  to  the  best  professional  advice.  Inconsiderate  attempts  to  remedy 


General  Rules.  73 

neglects,  or  cure  what  is  defective,  generally  make  the  case  worse,  and  often 
implicate  character.  Cases  of  great  hardship  and  difficulty  frequently  arose 
on  bills  granted  partly  for  usurious  consideration.  A  mighty  benefit,  how- 
ever, has  now  been  conferred  by  the  statute  of  58  Geo.  III.  c.  93,  which  en- 
acts,"That  no  bill  of  exchange  or  promissory  note  that  shall  be  drawn  or  made 
after  the  passing  of  this  act  shall,  though  it  may  have  been  given  for  a  usu- 
rious consideration,  or  upon  a  usurious  contract,  be  void  in  the  hands  of  an 
indorsee  for  valuable  consideration,  unless  such  an  indorsee  had,  at  the  time 
of  discounting  or  paying  such  consideration  for  the  same,  actual  notice  that 
such  bill,  etc.,  had  been  originally  given  for  a  usurious  consideration,  or  upon 
a  usurious  contract."  It  is  much  to  be  regretted  that  the  same  protection 
was  not  extended  by  this  statute  to  the  innocent  holder  of  a  bill  granted  for 
a  game  debt.  Such  bills  are  still  void  in  the  hands  of  a  bonaf.de  indorsee. 
In  Scotland,  it  has  been  decided  otherwise  (25th  January,  1740,  Nielson  ; 
Bell,  vol.  ii.  p.  210).  The  rage  for  legislation  has  not  yet  extended  itself  to 
lawyers,  who,  as  a  body,  can  hardly  be  expected  to  display  any  anxiety  to 
remedy  defects  which  add  to  their  emoluments  and  consequence.  How  much 
of  the  learning  of  this  profession  is  wasted  on  niceties  and  difficulties  that 
would  readily  yield  to  the  spell  of  an  act  of  Parliament.  To  the  law,  however, 
we  owe  this  sound  maxim,  that  "  unless  it  has  been  so  expressly  declared  by 
the  legislature,  and  it  formerly  was  in  the  case  of  usury,  and  still  is  as  to 
bills  for  game  debts,  illegality  of  consideration  will  be  no  defence  in  an  ac- 
tion at  the  suit  of  a  bona  fide  holder,  without  notice  of  the  illegality,  unless 
he  obtained  the  bill  after  it  became  due.  (Chitty,  105.)  Thus  forgery  does 
not  vitiate  a  bill.  The  forged  document  is  good  to  and  against  all  parties 
but  those  whose  names  are  forged.  Against  one  whose  name  is  forged,  it 
is  true  it  will  neither  support  an  action  nor  ground  a  claim ;  "  yet  if  he 
have  given  credit  to  acceptances  or  indorsations  as  binding  on  him,  forged 
by  the  same  hand,  he  will  be  liable."  (3  Esp.  N.  P.  50  ;  2  Bell,  250.)  Sub- 
sequent approbation  also  does  away  an  objection  on  the  head  of  forgery  or 
fraud,  and  generally  all  sorts  of  objections  otherwise  competent.  This  doc- 
trine holds  as  to  vitiations  when  the  stamp  laws  are  not  concerned  ;  but 
without  the  consent  of  parties,  all  vitiations  or  alterations  of  bills  in  material 
parts  are  fatal.  (2  Bell,  252.)  A  clerk  or  servant  may  accept  a  bill  for  his 
master,  if  authorized  to  so  do  ;  and  authority  will  be  inferred  from  a  sanc- 
tioned practice.  The  law  on  this  point  is  dangerous,  and  would  require 
legislative  revision.  If  the  servant  or  agent  do  not  explain  the  character 
in  which  he  acts,  but  subscribes  his  own  name  simply,  he  will  bind  himself, 
not  his  employer.  An  acceptor  may  enlarge  the  term  of  payment,  or  ac- 
cept for  a  part,  or  under  any  other  condition  not  expressed  in  the  bill ;  but 
in  that  case  it  is  optional  in  the  holder  to  take  the  acceptance  as  thus  offered, 
or  to  proceed  as  if  no  such  offer  had  been  made  ;  if  rejected,  the  protest 
should  bear  the  condition,  and  the  rejection  of  it ;  it  should  also  be  kept  in 
view,  that  a  holder  who  accepts  of  a  limited  or  conditional  acceptance,  lib- 
erates the  drawer  and  prior  indorser,  unless  he  have  their  consent.  Blank 
indorsements  are  held  to  be  of  the  date  of  the  bill,  until  the  contrary  is 
proved.  Indorsements  after  the  term  of  payment,  though  for  value,  do  not 
protect  the  indorsees  like  indorsements  before  maturity;  very  slight  evidence 
is  admitted  as  a  proof  of  knowledge  of  dishonor,  and  the  holder  in  that  case 
becomes  liable  to  all  exceptions  which  can  be  stated  against  the  right  of  his 


74  Essay  on  Exchange. 

immediate  indorse?,  or  the  person  who  held  the  bill  when  it  became  due. 
When  acceptance  is  refused,  and  the  bill  returned  with  protest,  action  may 
be  raised  immediately  against  the  drawer,  though  the  regular  time  of  pay- 
ment is  not  arrived.  His  debt,  in  such  a  case,  is  considered  as  contracted 
the  moment  the  bill  is  drawn ;  if  the  date  of  a  bill  be  prior  to  that  of  a 
commission  of  bankrupt,  the  debt,  in  such  a  case,  may  be  claimed  upon. 
As  to  current  bills  and  contingent  claims,  the  case  is  unfortunately  different ; 
in  these  respects,  England  might  derive  great  help  from  the  law  of  Scotland. 


Duties  of  Drawee. 

The  drawee,  who,  having  funds,  refuses  to  accept,  is  responsible  for  the 
consequences  to  the  drawer,  and  may  also  be  sued  for  payment  by  the  payee, 
or  holder,  the  presentment  and  protesting  the  bill  for  non-acceptance  op- 
erating as  an  intimated  assignment  and  complete  transfer  of  the  debt  to  the 
holder,  who,  in  Scotland,  is  preferred  to  any  subsequent  arrester.  The  drawee 
who  has  no  funds  is  not  bound  to  accept ;  but,  after  protest  for  non-accept- 
ance, he  may  accept  supra-protest,  for  the  honor  of  the  drawer  and  indors- 
ers,  or  either  of  them.  A  third  party  may  thus  accept  for  honor,  supra- 
protest  ;  and  whoever  does  so,  if  he  give  immediate  notice  and  send  off  the 
protest,  may  have  immediate  recourse  on  the  party  or  parties  for  whose 
honor  he  has  interfered. 


Payee,  or  Holder.     Effect  of  Banlxruptcy.     Accommodation  Paper.     Cross  Paper. 

It  is  the  duty  of  the  payee,  when  directed  by  the  drawer,  and  of  every  one 
who  is  merely  an  agent  for  the  owner,  though  acting  gratuitously,  to  present 
a  bill  for  acceptance.  The  time  thought  reasonable  for  this  purpose  is 
twenty-four  hours,  or  at  least  within  business  hours  of  the  day  following  that 
on  which  the  bill  was  received.  It  is  prudent  in  all  holders  of  a  bill  to 
present  for  acceptance  within  this  period  ;  and  in  all  cases  where  present- 
ment is  made,  and  acceptance  refused,  notice  should  be  given  to  all  against 
whom  it  is  meant  to  preserve  recourse.  A  draft  may  be  left  twenty-four 
hours  with  the  drawee,  if  no  post  go  out  in  the  mean  time ;  but  if  he  inti- 
mate within  that  time  that  he  will  not  accept,  or  ask  more  time  to  consider, 
notice  should  be  given.  (Chitty,  288,  289.)  A  verbal  acceptance,  if  it  can 
be  proved,  or  one  by  a  separate  writing,  binds  the  drawee  ;  but  in  Scotland 
none  but  a  written  acceptance  on  the  bill  will  authorize  the  usual  summary 
diligence.  (Chitty,  217,  270;  2  Bell,  69,  240.)  If  the  drawee  had  no 
funds,  notice  to  the  drawer  is  not  necessary;  but  as  the  not  having  funds 
is  a  matter  of  fact  to  be  proved,  it  is  safer  in  this,  and  indeed  in  all  other 
cases,  to  give  the  usual  and  regular  notice.  When  a  bill  is  drawn  at  some 
certain  time  after  sight,  presentment  is  necessary  to  fix  the  term  of  pay- 
ment. Respecting  bills  of  this  description,  both  foreign  and  inland,  the 
general  rule  is,  that  due  diligence  must  be  used.  Foreign  bills,  so  drawn, 
may  be  put  into  the  circulation  without  acceptance  as  long  as  the  conve- 
nience of  the  successive  holders  requires  ;  and  it  has  been  found  not  to  be 
laches  (in  Scotland,  mora,  or  undue  delay,)  to  keep  a  bill  (at  three  days' 


Accommodation  Paper.  75 

sight)  out  in  the  circulation  for  twelve  months ;  but  if,  instead  of  circulating, 
a  holder  were  to  lock  it  up,  this  would  be  laches.  An  unacceptable  inland 
bill  may  also  be  put  in  circulation  ;  and  any  holder,  who  does  not  circulate 
it,  has  a  reasonable  time,  such  as  the  fourth  day,  respecting  a  bill  drawn 
within  twenty  miles  of  London,  for  presenting  it  there  for  acceptance.  De- 
spatch and  attention,  however,  are  always  advisable.  It  is  said  that  when 
a  bill  has  been  already  protested  for  non-acceptance,  and  due  notice  thereof 
given,  it  is  not  necessary  to  protest  or  to  give  notice  on  account  of  non-pay- 
ment, but  it  is  usual  to  do  so,  and  the  safer  practice.  The  same  rules  and 
the  same  time  should  be  observed  as  to  non-payment,  that  are  observed  as 
to  protest  and  notice,  in  the  case  of  non-acceptance.  When  inland  bills 
are  made  payable  on  a  day  named  and  fixed  in  the  bills,  it  is  common  to 
delay  presenting  them  for  acceptance,  until  they  can  also  be  presented  for 
payment,  and  then,  if  necessary,  to  protest  for  both ;  but  it  is  better  to  make 
a  presentment  for  acceptance  as  soon  as  it  can  be  done  in  the  ordinary 
course  of  business.  It  has  already  been  stated,  that  notice,  either  of  non- 
acceptance,  when  a  presentment  has  been  made,  or  for  non-payment,  must 
be  given  to  all  the  parties*  to  whom  the  holder  intends  to  resort  for  payment. 
Bankruptcy  is  no  excuse  for  neglecting  any  step  in  the  negotiation  of  a  bill. 
If  a  party  be  bankrupt,  notice  of  recourse  should  be  given  to  him  and  his 
assignees  ;  if  dead,  to  his  executor  or  administrator ;  if  abroad,  the  notice 
should  be  left  at  his  place  of  residence,  if  he  have  one,  and  a  demand  of 
acceptance  or  payment  (when  that  is  necessary)  should  be  made  of  his  wife 
or  servant.  Notice  should  also  be  made  to  one  who  merely  guarantees 
payment ;  and  a  person  who  subscribes  a  bill  not  addressed  to  him  is  held 
to  be  a  collateral  security.  If  notice  be  made  to  one  indorser,  he  may  give 
notice  to  prior  indorsers,  or  to  the  drawer ;  and  if  done  timely  it  will  be 
available  to  the  holder ;  but  notice  by  a  party,  not  party  to  the  bill,  nor 
agent  for  a  party,  will  not  be  available. 

Accommodation  bills  are  subject  to  the  same  rules  as  other  paper,  except 
among  those  who  agree  to  lend  their  names  or  credit.  Among  them  the 
rule  is,  that  he  for  whose  use  the  money  is  to  be  raised  shall  provide  for  the 
bill ;  but  as  all  the  others  have  no  action  of  relief,  when  forced  to  pay,  they 
are  entitled  to  notice.  In  Scotland,  this  has  been  extended  to  the  drawer, 
when  he  is  not  the  party  for  whom  the  credit  was  intended.  With  respect 
to  cross  paper,  it  is  held  that  mutual  accommodations  exchanged  are  good 
considerations  for  each  other ;  that  in  case  of  bankruptcy,  a  dividend  from 
any  one  estate  is  to  be  held  as  payment  of  all  that  can  be  demanded  in  re- 
spect of  that  debt ;  and  that  there  can  be  no  double  ranking  of  the  same 
debt.  But  questions  often  arise  in  such  cases,  which  require  the  utmost 
professional  skill  to  comprehend  and  decide.  In  a  short  digest  of  this  na- 
ture, it  is  impossible  to  enter  into  the  niceties  of  legal  questions ;  and  we 
can  only  observe  generally,  that  parties  should  never  act  in  cases  of  diffi- 
culty, without  taking  the  best  professional  assistance. 

The  law  respecting  bills  of  exchange  is  more  consonant  with  reason  than 
almost  any  other  branch  of  our  law,  since,  where  it  is  silent,  recourse  is 
had  to  the  custom  of  merchants. 

The  best  authorities  respecting  the  law  of  bills  are  the  treatises  of  Chitty 
and  of  Bayley  as  to  English  law,  and  Mr.  Bell's  Commentaries  on  Mercan- 
tile Jurisprudence  as  to  Scotch  law. 


76 


Essay  on  Exchange. 


Table  containing  the  Value  of  the  Moneys  of  Account  of  different  Places,  ex- 
pressed in  Pence  and  Decimals  of  Pence,  according  to  the  Mint  Price  both  of 
Gold  and  Silver  in  England;  that  is,  £3  17s.  lO^d.  per  Ounce  for  Gold,  and 
5s.  2d.  per  Ounce  for  Silver.  (Kelly's  Cambist,  ii.  p.  149.) 

Value  in  Value 

Places.                                                 Names.                                              Silver,  in  Gold. 

d.  d. 

Aix-la-Chapelle,  .  Rixdollar  current 31,  40  31,  43 

Amsterdam, Rixdollar  banco  (agio  at  4  per  cent ) 52,  54  variable. 

Florin  banco, 21,  ditto. 

Florin  current, 20,  72  ditto. 

Pound  Flemish  current, 124,  32  ditto. 

Antwerp, Pound  Flemish  (money  of  exchange),   123,  25  123,  87 

Florin  (money  of  exchange),    20,54  20,64 

Pound  Flemish  current, 105,  65  106,  18 

Florin  current, 17,60  17,70 

Barcelona, Libra  Catalan, 28,  14  26,  70 

Basil, Rixdollar,  or  ecu  of  exchange, 47,  27  47, 

Rixdollar  current, 42,  45  42,  20 

Berlin, Pound  banco, 47,  25  variable. 

Rixdollar  current, 36,  ditto. 

Berne, Ecu  of  3  livres, 42,  64  42,  90 

Crown  of  25  batzen, 35,53  35,75 

Bremen, Rixdollar  current, 37,  80  variable. 

Rixdollar  in  Carls  d'or, 39,  68 

Cassel, Rixdollar  current, 37,  80  variable. 

Cologne, Rixdollar  specie  of  80  albuses, 31,  38  ditto. 

Rixdollar  current  of  78  albuses, 30,  60  ditto. 

Constantinople,   .  Piastre,  or  dollar, 9,  45  uncertain. 

Dantzic, Gulden,  or  florin, 9,  9, 

Denmark, Rixdollar  specie, 54,72  .... 

Rixdollar  crown  money, 48,  37         

Rixdollar,  Danish  currency, 44,27  44,88 

England, Pound  sterling, 240,  240, 

Florence, Lira, 8,  12  8,  53 

Ducat,  or  crown  current, 56,  84  59,  71  . 

Scudo  d'or,  or  gold  crown, 63,  97 

France, Livre  Tournois 9,  58  9,  38 

Franc  (new  system), 9,  70  9,  52 

Francfort, Rixdollar,  convention  money, 37,  80  37J  65 

Rixdollar  Muntze,  or  in  small  coins, 31,  50       

Germany, Rixdollar  current, 37,80  variable. 

Rixdollar  specie, 50,  40  ditto. 

Florin  of  the  empire 25,  20  ditto. 

Rixdollar  Muntze, 31 ,  50  ditto. 

Florin  Muntze, 21,  ditto. 

Geneva, ;...  Livre  current, • 16,13  16,13 

Florin, 4,  60  4,  84 

Genoa, Lira  fuori  banco, « 8,  7,  83 

Pezza,  or  dollar  of  exchange, 45,92  45,50 

Scudo  di  cambio,  or  crown  of  exchange, . . .    36,  75  36,  02 

Hamburg Mark  bartco  (at  a  medium),   18,  22  variable. 

Pound  Flemish  banco, 136,  65  ditto. 

Mark  current, 14,  82  ditto. 

Pound  Flemish  current, Ill,  15  ditto. 

Hanover, Rixdollar  (in  cash),  42,  42,26 

Rixdollar  (gold  value),  39,  39,  24 


Moneys  of  Account. 


77 


Value  in  Value 

Places.                                                     JVaaus.                                                 Silver.  in  Gold 

d.  d. 

Konigsberg, Gulden,  or  florin, 12,  variable. 

Leghorn, Pezza  of  8  reals, 46,25  49,16 

Lira  moneta  buona, 8,  13  8,  55 

Lira  moneta  lunga, 7,79  8,  1 9 

Leipsic, Bixdollar,  convention  money, 37,  80  variable. 

Rixdollars  in  Louis  d'ors  or  Fredericks, 39,  68 

Malta, Scudo,  or  crown, 21,  32  23,  34 

Milan, Lira  imperiale, 10,  41  10,  53 

Lira  corrente, 7,  45  7,  44 

Scudo  imperiale, 60,90  61,60 

Scudo  corrente, 42,  32  42,  78 

Modena, Lira, 3,72  

Munich,                  Gulden,  or  florin, 21,  21,28 

Naples, Ducat  of  1818, 41,  20  41,  22 

Parma, Lira, 2,35  2,40 

Persia, Toman  of  100  mamoodis, 287,  60  

Poland, Gulden,  or  florin, 6,  03  6,  27 

Portugal, Milree, 67,  34 

Old  crusade, 26,  94 

Riga, Rixdollar  Alberts, 52,  54  variable. 

Rixdollar  currency  (agio  at  40  per  cent),  . .    37,  53  ditto. 

Rome, Scudo,  or  crown, 52,  05  51 ,  63 

Scndo  di  stampa  d'oro, 79,  37  78,  73 

Russia, Ruble, variable. 

Sardinia, Lira, 18,  21  18,  82 

Sicily, Ounce, 123,  54  124,  80 

Scudo,  or  crown, 49,02  49,92 

Spain, Real,  of  old  plate, 4,  88  4,  57 

Real,  of  new  plate, 5,18  4,86 

Real,  of  Mexican  plate 6,  48  6,  07 

RealVellon, 2,59  2,43 

Dollar  of  old  plate,  or  of  exchange, 39,  36,59 

Sweden, Rixdollar, 55,  41  56,  43 

Switzerland, Franc  (new  system), 22,  14  

Trieste, Florin,  Austrian  currency, 25,  20  25,  05 

Lira,  Trieste  currency, 4,  76  4,  73 

Lira  di  piazza, 4,  65  4,  63 

Turin, Lira, 11,28  11,23 

Valencia, Libra, 39,  45  36.  59 

Venice, Lira  piccola  (in  the  old  coins), 5,  07  variable. 

Lira  piccola  (in  the  coins  introduced  by  the 

Austrians) 4, 25  ditto. 

Vienna, Florin, 25,  20  25,  05 

Zante, Real, 4,  06  variable. 

Zurich, Florin,  money  of  exchange, 25,  85  ditto. 

Florin  current, 23,  50  ditto. 


78 


Essay  on  Exchange. 


E  X  P  L  A  X  A  T  I  O  N  8  . 

Moneys  of  Exchange. 

and  pence  Flemish  per  pound  sterling. 
fo  per  cent. 
I  stivers  per  pound  sterling, 
ind  pence  Flemish  banco  per  pound  ster. 
cents  per  pound  sterling, 
ing  for  the  piastre  or  dollar  of  exch'ge. 
ing  per  milree. 
ing  per  pezza  of  exchange, 
ing  per  pezza  fuori  banco, 
ing  per  ducat,  (new  coinage  of  1818). 
3  per  pound  sterling. 

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'    ,J_«       Ml    W-       — 

H<5  S  8 


AN  ESSAY  ON  MONEY, 

WITH  REMARKS  ON  COINS,  BULLION,  METALLIC  AND  PAPER  CURRENCY,  SEIGN- 
ORAGE,  DEGRADATION  OF  THE  STANDARD,  &c. ;  TOGETHER  WITH  COPIOUS 
TABLES  OF  THE  WEIGHT,  VALUE,  &c.,  OF  THE  COINS  OF  VARIOUS  NATIONS. 

BT  J.  B.  McCULLOCH. 
CHAPTER  I. 

CIRCUMSTANCES  WHICH  LED  TO  THE  USE  OF  MONEY.  PRINCIPAL  PROPER- 
TIES THAT  EVERY  COMMODITY  USED  AS  SUCH  OUGHT  TO  POSSESS. NOT 

A  SIGN  OR  A  MEASURE  OF  VALUE,  BUT  A  REAL  EQUIVALENT. 

Circumstances  leading  to  the  Use  of  Money. 

MONEY  is  a  term  used  to  designate  whatever  commodity  the  inhabit- 
ants of  any  particular  country  accept,  either  voluntarily  or  by  compul- 
sion, as  an  equivalent  for  their  labor,  and  for  whatever  else  they  have  to 
dispose  of. 

A  country  in  which  the  division  of  labor  was  unknown,  and  where 
every  individual  or  family  directly  produced  the  commodities  necessary 
for  his  or  their  consumption,  would  have  no  exchanges,  and  consequent- 
ly no  money.  But  after  the  division  of  labor  has  been  established,  the 
introduction  of  money  becomes  necessary,  or,  at  least,  highly  advantage- 
ous. A  very  small  part  only  of  a  man's  wants  is  then  directly  supplied 
by  his  own  labor.  The  greater  part  is  indirectly  supplied  by  exchanging 
that  part  of  the  produce  of  his  labor  which  exceeds  his  own  consumption, 
for  such  parts  of  the  produce  of  other  men's  labor  as  he  has  occasion 
for,  and  they  are  willing  to  part  with.  Every  man  thus  lives  by  ex- 
changing, or  becomes  in  some  measure  a  merchant,  and  the  society  it- 
self grows  to  be  what  is  properly  a  commercial  society. 

"  But  when  the  division  of  labor  first  began  to  take  place,  this  power 
of  exchanging  must  frequently  have  been  very  much  clogged  and  em- 
barrassed in  its  operations.  One  man,  we  shall  suppose,  has  more  of  a 
certain  commodity  than  he  himself  has  occasion  for,  while  another  has 
less.  The  former,  consequently,  would  be  glad  to  dispose  of,  and  the 
latter  to  purchase,  a  part  of  this  superfluity.  But  if  this  latter  should 
chance  to  have  nothing  that  the  former  stands  in  need  of,  no  exchange 
can  be  made  between  them.  The  butcher  has  more  meat  in  his  shop 
than  he  himself  can  consume,  and  the  brewer  and  the  baker  would  each 


80  Money. 

be  willing  to  purchase  a  part  of  it ;  but  they  have  nothing  to  offer  in  ex- 
change except  the  different  productions  of  their  respective  trades,  and 
the  butcher  is  already  provided  with  all  the  bread  and  beer  which  he 
has  immediate  occasion  for.  No  exchange  can,  in  this  case,  be  made 
between  them.  He  cannot  be  their  merchant,  nor  they  his  customers  ; 
and  they  are  all  of  them  thus  mutually  less  serviceable  to  one  another. 
To  avoid  the  inconvenience  of  such  situations,  every  prudent  man,  in 
every  period  of  society,  after  the  establishment  of  the  division  of  labor, 
must  naturally  have  endeavored  to  manage  his  affairs  in  such  a  manner 
as  to  have  at  all  times  by  him,  besides  the  peculiar  produce  of  his  own  in- 
dustry, a  certain  quantity  of  some  one  commodity  or  another,  such  as 
he  imagined  few  people  would  be  likely  to  refuse  in  exchange  for  the 
produce  of  their  industry."  (Wealth  of  Nations,  Vol.  I.,  p.  43,  Mc- 
Culloch's  ed.)  This  commodity,  whatever  it  may  be,  is  money. 

Commodities  used  as  Money  in  Different  Countries. 

An  infinite  variety  of  commodities  have  been  used  as  money  in  differ- 
ent countries  and  states  of  society.  Those  nations  who  chiefly  subsist 
by  the  chase,  such  as  the  ancient  Russians,  and  the  greater  part  of  the 
Indians  who  now  occupy  the  uncultivated  portion  of  America,  use  the 
skins  of  wild  animals  as  money.  In  a  pastoral  state  of  society,  cattle 
are  most  commonly  used  for  that  purpose.  Homer  tells  us  that  the 
armor  of  Diomede  cost  only  nine  oxen,  whilst  that  of  Glaucus  cost  only 
one  hundred.  (Ilia.  lib.  6,  lin.  235.)  The  etymology  of  the  Latin 
word  (pecunia)  signifying  money,  and  of  all  its  derivatives,  proves  that 
cattle  (peons')  had  been  the  primitive  money  of  the  Romans.  They  had 
also  been  used  as  such  by  the  ancient  Germans  ;  for  their  laws  uniform- 
ly fix  the  amount  of  the  penalties  to  be  paid  for  particular  offences  in 
cattle.  (Storch,  in  loco  citato.)  In  remoter  ages  corn  was  very  gen- 
erally used  in  agricultural  countries  as  money  ;  and  even  now  it  is  by 
no  means  uncommon  to  stipulate  for  corn  rents  and  wages.  Other  com- 
modities have  been  used  in  different  countries.  Salt  is  said  to  be  the 
common  money  of  Abyssinia  (Wealth  of  Nations,  Vol  I.,  p.  45)  ;  a 
species  of  shell  called  cowries,  gathered  on  the  shores  of  the  Maldive 
Islands,  are  used  in  smaller  payments  throughout  Hindustan,  and  form 
the  only  money  of  extensive  districts  in  Africa.  Dried  fish  forms  the 
money  of  Iceland  and  Newfoundland,  and  sugar  of  some  of  the  West 
India  Islands ;  and  Dr.  Smith  mentions  that  there  was  at  the  period  of 
the  publication  of  the  "  Wealth  of  Nations,"  a  village  in  Scotland 
where  it  was  customary  for  a  workman  to  carry  nails  as  money,  to  the 
baker's  shop  or  the  ale-house.  (Wealth  of  Nations,  Vol.  I.  p.  45.) 

Defects  of  these  Commodities. 

But  these  commodities  are  universally  deficient  in  some  of  the  principal 
requisites  which  every  commodity  used  as  money  ought  to  possess.  Prod- 
ucts must  frequently  be  brought  to  market  worth  only  half  an  ox,  or  half 
a  skin ;  but  as  an  ox  could  not  be  divided,  and  as  the  division  of  a  skin 
would  deprive  it  of  the  greater  part  of  its  value,  it  would  be  impossible  to 


Money.  81 

exchange  them  for  such  money.  Divisibility  is  not,  however,  the  only 
indispensable  requisite  in  a  commodity  used  as  a  medium  of  exchange. 
It  is  necessary  that  it  should  admit  of  being  kept  for  an  indefinite  period 
without  deteriorating ;  that  it  should,  by  possessing  great  value  in  small 
bulk,  be  easily  transported ;  and  that  one  piece  of  money,  of  a  certain 
denomination,  should  always  be  precisely  equivalent  to  every  other  piece 
of  money  of  the  same  denomination.  But  none  of  the  commodities  above 
named  as  having  been  used  as  money  possesses  these  properties.  Though 
cattle  had  been  sufficiently  divisible,  they  could  neither  be  preserved,  nor 
transported  from  one  place  to  another,  without  a  great  deal  of  trouble  and 
expense ;  while,  owing  to  the  difference  in  their  qualities,  one  ox  might 
be  worth  two  or  three  oxen  of  an  inferior  species.  It  is  plain,  therefore, 
that  they  could  not  serve  as  money  except  in  a  very  rude  state  of  society, 
when  the  arts  were  almost  unknown,  and  when  the  rearing  of  cattle 
formed  the  principal  employment.  Corn  was  sufficiently  divisible  ;  but 
its  bulk  was  far  too  great  in  proportion  to  its  value  to  admit  of  its  easy 
transportation,  and  it  was  also  of  very  different  and  not  easily  appreciated 
qualities.  Salt,  sugar,  shells,  and  fish,  are  all  liable  to  insuperable  ob- 
jections. The  values  of  equal  quantities  of  all  of  them  differ  very  great- 
ly ;  some  of  them  cannot  be  divided,  and  others  cannot  be  preserved  or 
transported  without  great  loss. 

But  the  commodities  in  question  were  deficient  in  a  still  more  important 
particular.  Their  value  was  not  sufficiently  invariable  to  permit  of  their 
being  advantageously  used  as  money.  They  were  not  durable  com- 
modities, nor  was  it  possible  to  adjust  their  supply  so  as  to  avoid  sudden 
fluctuations  of  price.  The  occasional  abundance  and  scarcity  of  pasture 
has  a  powerful  influence  on  the  price  of  cattle,  which  is  still  more  serious- 
ly affected  by  the  prevalence  o/"  epidemical  diseases,  and  other  contin- 
gencies. The  fluctuations  in  the  price  of  corn,  arising  from  the  varia- 
tions of  the  seasons,  are  too  striking  and  obvious  to  require  to  be  pointed 
out.  And  in  the  islands  where  cowries  are  picked  up,  a  strong  gale  from 
a  particular  point  of  the  compass  has  frequently,  in  a  few  hours,  sunk 
their  value  considerably.  It  was  impossible,  therefore,  that  such  com- 
modities could  ever  be  either  generally  or  permanently  used  as  money  in 
civilized  societies.  ,No  person  would  willingly  exchange  the  produce  of 
his  industry  for  a  commodity  which  might,  in  a  few  weeks,  or  even  days, 
lose  a  third  or  a-  half  of  its  value. 

Gold  and  Silver  the  fittest  Materials  for  Money,  and  first  used  in  the  shape  of 

Bars  or  Ingots. 

The  desire  of  uniting  the  different  qualities  of  invariability  of  value, 
divisibility,  durability,  facility  of  transportation,  and  perfect  sameness, 
doubtless  formed  the  irresistible  reasons  which  have  induced  mankind,  in 
every  civilized  society,  to  employ  gold  and  silver  as  money.  The  value 
of  these  metals  is  certainly  not  invariable,  but  it  changes  only  by  slow 
degrees  ;  they  are  divisible  into  any  number  of  parts,  and  have  the  sin- 
gular property  of  being  easily  reunited,  by  means  of  fusion,  without  loss  ; 
they  do  not  deteriorate  by  being  kept ;  and,  from  their  firm  and  compact 


82  Money. 

texture,  they  are  very  difficult  to  wear ;  their  cost  of  production,  espe- 
cially of  gold,  is  so  considerable,  that  they  possess  great  value  in  small 
bulk,  and  can,  of  course,  be  transported  with  comparative  facility  ;  and  an 
ounce  of  pure  gold  or  silver,  taken  from  the  mines  in  one  quarter  of  the 
world,  is  precisely  identical  .with  an  ounce  of  pure  gold  or  silver  dug 
from  the  mines  in  any  other  quarter.  No  wonder,  therefore,  when  almost 
all  the  qualities  necessary  to  constitute  money  are  possessed  in  so  eminent 
a  degree  by  the  precious  metals,  that  they  have  been  used  as  such,  in 
civilized  societies,  from  a  very  remote  era.  They  became  universal 
money,  as  M.  Turgot  has  observed,  "  not  in  consequence  of  any  arbitrary 
agreement  among  men,  or  of  the  intervention  of  any  law,  but  by  the 
nature  and  force  of  things." 

A  considerable  period  must,  however,  have  elapsed  after  the  introduc- 
tion of  the  precious  metals  into  commerce,  before  they  were  generally 
used  as  money.  But,  by  degrees,  the  various  qualities,  which  so  pe- 
culiarly fit  them  for  this  purpose,  would  become  obvious  ;  and  every  indi- 
vidual, in  consulting  his  own  advantage,  would  endeavour  to  exchange 
a  part,  at  least,  of  the  produce  of  his  industry  for  commodities  which 
could  be  easily  concealed  or  carried  about,  which  did  not  deteriorate  by 
being  kept,  and  of  which  he  could  give  a  portion  equal  in  value  to  the 
value  of  any  other  commodity  he  might  afterwards  wish  to  obtain. 
When  first  brought  to  market,  gold  and  silver,  like  copper,  iron,  or  any 
other  metal,  were  in  an  unfashioned  state,  in  bars  or  ingots.  A  sheep,  an 
ox,  a  bushel  of  wheat,  &c.,  was  then  bartered  for  a  piece  of  gold  or  sil- 
ver, exactly  as  it  would  have  been  bartered  for  iron,  copper,  cloth,  or  any 
other  commodity.  The  parties  first  agreed  upon  the  quality  of  the  metal 
to  be  given  for  the  goods,  and  the  quantity,  which  the  possessor  of  the 
metal  had  bound  himself  to  pay,  was  next  ascertained  by  weight.  Nor 
is  this  a  mere  conjectural  statement,  advanced  in  a  later  age  to  explain 
appearances,  and  resting  on  probability  only.  Aristotle  (Polit.,  lib.  i. 
cap.  9)  and  Pliny  (Hist.  Nat.,  lib.  xxxiii.  cap.  'A)  tell  us,  that  such  was,  in 
fact,  the  original  method  by  which  the  precious  metals  were  exchanged 
in  Greece  and  Italy  ;  and  the  sacred  writings  prebent  us  with  a  striking 
and  remarkable  example  of  the  prevalence  of  the  same  primitive  practice 
in  the  East.  We  are  there  told  that  Abraham  weighed  four  hundred 
shekels  of  silver,  and  gave  them  in  exchange  for  a  pie?,e  of  ground  he 
had  purchased  from  the  sons  of  Heth.  (Genesis,  chap,  zxiii.  ver.  16.) 
It  is  also  mentioned,  that  this  silver  was  "  current  money  mth  the  mer- 
chant,'1'' an  expression  which  evidently  refers  to  its  quality  only.  For,  had 
it  been  coined,  or  marked  with  a  stamp,  indicating  its  weight  and  fine- 
ness, it  would  have  been  unnecessary  to  have  weighed  it.  These  ancient 
practices  still  subsist  hi  various  countries.  In  many  parts  of  China,  gold 
and  silver  do  not  circulate  as  coin  under  the  authority  of  a  public  stamp, 
but  their  value  is  always  ascertained  by  weight.  When  exchanged,  they 
are  cut  into  pieces,  supposed  to  be  nearly  proportioned  to  the  value  of 
the  commodity  they  are  to  be  given  for  ;  and  the  pieces  are  then  weighed 
to  ascertain  their  precise  value.  This  practice  is  also  prevalent  in  Abys- 
sinia and  Tonquin.  (Goguet,  De  POrigine  des  Loix,  fyc.,  torn.  i.  p.  268, 
4to  edit.  See  also  Park's  Travels,  vol.  i.  p.  464,  8vo  edit.) 


Money.  63 

Before  the  art  of  metallurgy  was  well  understood,  the  baser  metals 
were  frequently  used  as  money.  Iron  was  the  primitive  money  of  the 
Lacedaemonians,  and  copper  of  the  Romans.  But  both  iron  and  copper 
deteriorate  by  being  kept ;  and,  besides  this  defect,  the  rapid  improve- 
ment of  the  arts,  and  the  consequent  reduction  of  their  price,  speedily 
rendered  their  bulk  in  proportion  to  their  value  too  great  to  permit  of 
their  continuing  to  be  used  as  money.  Copper,  however,  is  still  advan- 
tageously used  in  the  form  of  tokens,  convertible  into  silver  in  very  small 
payments.  In  Great  Britain,  copper  pence  and  halfpence  are  at  present 
rated  at  about  seventy -two  per  cent,  above  their  real  value  ;  but  as  the 
issue  of  them  is  exclusively  in  the  hands  of  government,  and  as  they  are 
legal  tender  to  the  extent  of  one  shilling  only,  in  any  one  payment,  this 
over- valuation  has  not,  for  reasons  which  we  shall  afterwards  explain,  had 
any  bad  effect.  (See  Memorandum  on  the  Silver  Coinage  of  1817,  by 
the  Master  of  the  Mint,  p.  378  of  the  Appendix  to  the  Lords'  Report  on 
the  Resumption  of  Cash  Payments  by  the  Bank.) 

Coinage  of  Gold  and  Silver. 

The  trouble  and  inconvenience  attending  the  weighing  of  the  quantity 
of  metal  in  every  exchange  of  gold  and  silver  for  commodities,  must 
have  been  early  experienced.  But  the  greatest  obstacle  to  the  use  of  un- 
fashioned  metals  as  money,  would  undoubtedly  be  found  in  the  difficulty 
of  determining  their  quality,  or  the  degree  of  their  purity,  with  sufficient 
facility  and  accuracy.  The  operation  of  assaying  is  one  of  great  nicety 
and  delicacy  ;  and,  notwithstanding  all  the  assistance  derived  from  modern 
art,  it  is  still  no  easy  matter  to  ascertain  the  precise  degree  of  purity  of  a 
particular  piece  of  metal.  In  early  ages,  such  an  operation  must  have 
been  performed  in  a  very  clumsy  and  bungling  manner.  It  is  most 
probable,  indeed,  that  when  the  precious  metals  were  first  used  as  money, 
their  quality  was  appreciated  only  by  their  weight  and  color.  A  very 
short  experience  would,  however,  be  sufficient  to  show  the  extreme  in- 
exactness of  conclusions  derived  from  such  loose  and  unsatisfactory  cri- 
teria ;  and  the  devising  of  some  method  by  which  the  fineness  of  the 
metal  might  be  easily  and  correctly  ascertained,  would  very  soon  be  felt 
as  indispensable  to  the  general  use  of  gold  and  silver  as  money.  Such  a 
method  was  not  long  in  presenting  itself.  It  was  early  discovered,  that, 
to  ascertain  the  purity  of  the  metal,  and  also  to  avoid  the  trouble  and  ex- 
pense of  weighing  it,  no  more  was  necessary  than  to  mark  each  piece 
with  a  stamp,  declaring  its  weight  and  fineness.  Such  seem  to  have  been 
the  various  steps  which  led  the  ancients  to  the  introduction  of  coined 
money  (Goguet,  De  POrigine  des  Loix,  fyc.,  torn.  i.  p.  269) ;  an  inven- 
tion of  the  very  greatest  utility,  and  which  has,  perhaps,  contributed  more 
than  any  other  to  facilitate  commerce,  and  to  accelerate  the  progress  of 
civilization  and  the  arts. 

Advantages  of  Coined  Money.  —  Coined  Money  not  a  Sign  or  a  Measure 
of  Value. 

"  Without  some  article  of  known  exchangeable  value,  such  as  coin, 
readily  received  as  an  equivalent  for  other  things,  the  interchange  of 


84  Money. 

commodities  must  have  been  very  limited,  and,  consequently,  the  divisions 
of  labor  very  imperfectly  established.  Now,  money  obviates  these  evils, 
and,  by  a  twofold  operation,  augments  production.  In  the  first  place,  it 
saves  all  that  time  and  labor  which,  while  the  intercourse  between  man 
and  man  is  carried  on  by  barter,  must  frequently  intervene  before  a  per- 
son can  be  supplied  with  the  quantity  of  the  commodity  which  he  wants. 
In  the  second  place,  and  in  consequence  of  its  saving  the  time  and  labor 
which  must  otherwise  be  spent  in  effecting  exchanges,  it  multiplies  the 
transactions  of  mercantile  industry,  and  thus  allows  the  divisions  of  em- 
ployment to  be  more  thoroughly  established.  By  the  first  operation,  it 
disengages  a  very  considerable  portion  of  labor  from  an  unproductive 
occupation,  and  enables  it  to  receive  a  more  useful  direction.  By  the 
second  operation,  it  increases  in  a  very  high  degree  the  productive  powers 
of  the  labor  already  usefully  employed.  It  assists  eveiy  man  in  availing 
himself  of  the  skill  and  dexterity  which  he  may  have  acquired  in  any 
particular  calling,  and  promotes  cultivation  in  a  manner  suitable  to  the 
climate  and  soil  of  different  districts,  and  of  different  countries.  And  by 
both  these  operations,  coined  money  increases,  to  an  extent  not  easy  to  be 
calculated,  the  wealth  of  civilized  communities."  (Torrens  On  the  Pro- 
duction of  Wealth,  p.  305.) 

But,  whatever  may  be  the  advantages  attending  the  use  of  coined 
money,  and  they  are  great  and  obvious,  it  is  necessary  to  observe,  that 
its  introduction  does  not  affect  the  nature  of  exchanges.  Equivalents  are 
still  given  for  equivalents.  The  exchange  of  a  quarter  of  corn  for  an 
ounce  of  pure,  unfashioned  gold  bullion,  is  undeniably  as  much  a  real 
barter,  as  if  it  had  been  exchanged  for  an  ox,  or  a  barrel  of  beer.  But 
supposing  the  metal  to  have  been  formed  into  a  coin,  that  is,  marked  with 
a  stamp  indicating  its  weight  and  fineness,  it  is  plain  that  circumstance 
could  have  made  no  change  in  the  terms  of  the  barter.  The  coinage 
saves  the  trouble  of  weighing  and  assaying  the  bullion,  but  it  does  nothing 
more.  A  coin  is  merely  a  piece  of  metal  of  a  known  weight  and  fine- 
ness ;  and  the  commodities  exchanged  for  it  are  always  held  to  be  of 
equal  value.  And  yet  these  obvious  considerations  have  been  very  gen- 
erally overlooked.  Coined  money,  instead  of  being  viewed  in  the  same 
light  as  other  commodities,  has  been  looked  upon  as  something  quite  mys- 
terious. It  was  said  to  be  both  a  sign  and  a  measure  of  value.  In  truth, 
however,  it  is  neither  the  one  nor  the  other.  A  sovereign  is  not  a  sign, 
it  is  the  thing  signified.  A  promissory  note,  payable  at  some  stated 
period,  may  not  improperly  be  considered  as  the  sign  of  the  specie  to  be 
paid  for  it ;  but  that  specie  is  itself  a  commodity  possessed  of  real  ex- 
changeable worth.  It  is  equally  incorrect  to  call  money  a  measure  of 
value.  Gold  and  silver  do  not  measure  the  value  of  commodities,  more 
than  the  latter  measure  the  value  of  gold  and  silver.  Every  thing 
possessed  of  value  may  either  measure,  or  be  measured  by,  every  thing 
else  possessed  of  value.  When  one  commodity  is  exchanged  for  another, 
each  measures  the  value  of  the  other.  If  the  quartern-loaf  were  sold  for 
a  shilling,  it  would  be  quite  as  correct  to  say,  that  a  quartern-loaf  meas- 
ured the  value  of  a  shilling,  as  that  a  shilling  measured  the  value  of  a 
quartern-loaf. 


Money.  85 


Use  of  Gold  and  Silver  as  a  Standard  for  estimating  the  Relative  Value  of  Com- 
modities. —  Proof  of  the  Non-existence  of  an  Abstract  or  Ideal  Standard. 

The  quality  of  serving  as  a  measure  of  value  is,  therefore,  equally  in- 
herent  in  every  commodity.  But  the  slow  degrees  by  which  the  precious 
metals  change  their  value,  renders  them  peculiarly  well  fitted  for  forming 
a  standard  by  which  to  compare  the  values  of  other  and  more  variable 
commodities.  To  this  standard  reference  is  almost  always  made  in  esti- 
mating the  value  of  the  products  of  every  civilized  country.  We  do  not 
say  that  one  man  is  worth  a  thousand  acres  of  land,  and  that  another  is 
worth  a  thousand  sheep ;  but  we  ascertain  for  how  much  gold  or  silver 
the  land  and  the  sheep  would  exchange,  and  then  say  that  their  propri- 
etors are  worth  so  much  money.  In  this,  however,  there  is  certainly 
nothing  mysterious.  We  merely  compare  the  value  of  one  commodity 
with  the  value  of  another ;  and  as  com  or  money  has  been  found  to  be 
the  most  convenient  standard  of  comparison,  the  value  of  all  other  com- 
modities is  usually  estimated  in  it. 

It  is  obvious,  from  this  statement,  that  the  terms  of  the  exchange  of  one 
commodity,  or  set  of  commodities,  for  another,  may  be  adjusted,  with 
reference  to  money,  without  any  money  being  actually  in  the  possession 
of  either  of  the  parties  making  the  exchange.  If  a  horse,  for  example, 
had  commonly  sold  for  ten  pieces  of  silver,  an  ox  for  five  pieces,  and  a 
sheep  for  one  piece,  it  would  mark  their  relative  values  to  each  other,  and 
the  animals  might  be  exchanged  on  this  footing  without  the  intervention 
of  money.  The  frequent  recurrence  of  transactions  of  this  kind  seems  to 
have  given  rise  to  the  notion  of  an  abstract  or  ideal  standard  of  value. 
Thus,  instead  of  saying  that  a  horse  is  worth  ten  pieces  of  silver,  an  ox 
five  pieces,  and  a  sheep  one  piece,  it  has  been  contended  that  it  might 
equally  have  been  said  that  they  were  respectively  worth  ten  points  or 
units,  five  points  or  units,  and  one  point  or  unit ;  and  that,  as  the  propor- 
tional values  of  commodities  might  be  as  clearly  expressed  in  these  ar- 
bitrary terms  as  in  money,  or  any  commodity  possessed  of  real  value,  the 
use  of  the  latter,  as  a  standard,  might  be  advantageously  dispensed  with, 
and  a  set  of  abstract  terms  adopted  in  its  stead.  This,  however,  is  com- 
pletely mistaking  the  nature  and  object  of  a  standard.  A  standard  is  not 
intended  to  mark  the  known  relations  between  different  commodities,  but 
to  enable  us  easily  to  discover  those  which  are  unknown.  Now,  although 
the  series  of  arbitrary  terms  may  serve  extremely  well  for  the  first  of 
these  purposes,  it  is  utterly  impossible  that  they  can  ever  serve  for  the 
second.  This,  however,  is  exclusively  the  object  of  a  standard  ;  and  it  is 
quite  plain  that  nothing  can  be  used  as  such  which  is  not  possessed  of  the 
same  properties  as  the  things  with  which  it  is  to  be  compared.  To  meas- 
ure length,  a  standard  must  have  length ;  to  measure  value,  it  must  have 
value.  The  value  of  commodities  is  ascertained  by  separately  comparing 
their  cost  with  the  cost  of  money,  and  we  express  their  relation  to  each 
other  by  simply  stating  the  result  of  our  inquiries  ;  that  is,  by  mentioning 
the  number  of  livres,  of  pounds,  or  of  fractions  of  a  pound,  they  are  respec- 
tively worth.  And,  when  any  new  commodity  is  offered  for  sale,  or  when 


86  Money. 

any  change  is  made  in  the  cost  of  an  old  one,  we  ascertain  their  relation 
to  the  rest,  by  merely  comparing  them  with  a  livre  or  a  pound.  It  is 
plainly  impossible,  however,  that  we  could  have  done  this,  had  the  terms 
livre,  or  pound,  been  purely  arbitrary,  and  referable  to  no  really  valuable 
article.  We  might  as  well  tiy  to  estimate  distances  by  an  imaginary 
inch,  or  an  imaginary  foot,  as  to  estimate  prices  or  values  by  an  imagin- 
ary shilling,  or  an  imaginary  sovereign.  When  we  say  that  an  ox  is 
worth  five  pounds  and  a  sheep  only  one,  we  really  mean  no  more  than 
that,  when  an  ox  and  a  sheep  are  compared  together,  that  is,  when  the  one 
serves  as  a  standard  by  which  to  estimate  the  value  of  the  other,  one  ox  is 
found  to  be  worth  five  sheep.  But,  suppose  that  we  wish  to  ascertain 
what  is  the  relative  value  of  some  other  commodity  ;  of  a  pound  of  tea, 
for  example ;  to  oxen  or  sheep,  of  what  use  would  it  be  to  be  told  that 
one  ox  was  worth  five  sheep,  or  that,  when  the  value  of  an  ox  was  repre- 
sented by  the  imaginary  term  "  five  pounds,"  the  value  of  a  sheep  was 
represented  by  the  imaginary  term  "  one  pound  ?"  It  is  not  the  relation 
between  oxen  and  sheep,  but  the  relation  between  these  animals  and  tea, 
that  we  are  desirous  of  learning.  And,  although  this  relation  may  be 
learned  by  comparing  the  cost  of  producing  oxen  and  sheep  with  the  cost 
of  producing  tea,  or  by  ascertaining  for  how  much  of  some  other  commod- 
ity an  ox,  a  sheep,  or  a  pound  of  tea  will  respectively  exchange,  it  is  obvi- 
ous it  could  never  be  learned  by  comparing  them  with  a  set  of  arbitrary 
terms  or  symbols  !  It  would  not,  in  truth,  be  more  absurd  to  attempt  to 
ascertain  it  by  comparing  them  with  the  hieroglyphics  on  an  Egyptian 
sarcophagus.  Nothing  that  will  not  exchange  for  something  else,  can 
ever  be  a  standard,  or  measure  of  value.  Commodities  are  always  com- 
pared with  commodities,  and  not  with  abstract  terms.  Men  go  to  market 
with  real  values,  and  not  with  the  signs  of  values  in  their  pockets.  And 
it  is  to  something  possessed  of  real  worth,  to  the  gold  contained  in  a  sov- 
ereign and  not  in  the  word  sovereign,  that  they  always  have  referred,  and 
must  continue  to  refer,  in  estimating  value. 

The  following  passage  of  Montesquieu  has  often  been  referred  to  in 
proof  of  the  existence  of  an  ideal  standard :  — "  Les  noirs  de  la  cote 
d'Afrique  ont  un  signe  des  valeurs  sans  monnoie  ;  c'est  un  signe  pure- 
ment  ideal  fonde  sur  le  degre  d'estime  qu'ils  mettent  dans  leur  esprit  a 
chaque  marchandise,  a  proportion  du  besoin  qu'ils  en  ont ;  une  certaine 
denree,  ou  marchandise,  vaut  trois  macutes  ;  une  autre,  six  macutes  ;  une 
autre,  dix  macutes  ;  c'est  comme  s'ils  disoient  simplement  trois,  six,  dix. 
Le  prixse  forme  par  la  comparaison  quails  font  de  toutes  les  marchandises 
entre  elles  :  pour  lors,  il  n'y  a  point  de  monnoie  particuliere,  mais  chaque 
portion  de  marchandise  est  monnoie  de  P  autre"  (Esprit  des  Loix,  livre 
xxii.  cap.  8.) 

But,  instead  of  giving  any  support  to  the  notion  of  an  abstract  standard, 
this  passage  might  be  confidently  referred  to  in  proof  of  its  non-exist- 
ence. Had  Montesquieu  said  that  the  blacks  determined  the  values,  or 
prices,  of  commodities,  by  comparing  them  with  the  arbitrary  term  macute, 
the  statement,  though  false,  would  have  been  at  least  in  point.  But  he 
says  no  such  thing.  On  the  contrary,  he  states  distinctly,  that  the  relative 
values  of  commodities  (marchandises)  are  ascertained  by  comparing  them 


Money.  87 

with  each  oilier  (entre  elles),  and  that  it  is  merely  the  result  of  the  com- 
parison that  is  expressed  in  arbitrary  terms. 

So  much  for  the  weight  to  be  attached  to  this  statement,  supposing  it  to 
be  well  founded.  The  truth  is,  however,  that  the  term  macute  is  not 
really  arbitrary,  and  employed  only  to  mark  an  ascertained  proportion, 
but  that  it  has  a  reference  to,  and  is,  in  fact,  the  name  of  an  intrinsically 
valuable  commodity.  "  On  a  bien  dit,"  says  1'Abbe  Morellet,  "  que  ce 
mot  maeute  etoit  une  expression  abstraite  et  generate  de  la  valeur,  et  cela 
est  vrai  au  sens  ou  nous  1'expliquerons  plus  bas ;  mais  on  n'a  pas  re- 
marque  que  cette  abstraction  a  ete  consequente  et  posterieure  &  1'emploi 
du  mot  macute  pour  signifier  une  marchandise,  une  denree  reelle  a  laquelle 
on  avoit  longtems  compare  toutes  les  autres. 

"  Macute  en  plusieurs  lieux  de  la  cote  d'Afrique,  est  encore  le  nom 
d'une  certaine  etoffe :  4  Chez  les  negres  de  la  cote  d'Angola,"1  dit  le  vo- 
yageur  Angelo, t  les  macutes  sont  des  pieces  de  nattes  d'une  aune  de  long  '; 
Jobson  dit  aussi  que  les  macutes  sont  une  espece  d^etoffe. 

"  Les  etoffes  ont  toujours  ete  1'objet  d'un  besoin  tres-pressant  chez  des 
peuples  aussi  barbares,  depourvus  de  toute  espece  d'industrie.  Les  nattes 
en  particulier  leur  sont  de  la  plus  grande  necessite.  Elles  sont  divisees 
en  morceaux  peu  considerables  et  d'une  petite  valeur ;  elles  sont  tres- 
uniformes  dans  leurs  parties,  et  les  premieres  qu'on  a  faites  auront  pu  etre 
semblables  les  unes  aux  autres,  et  d'une  bonte  egale,  sous  la  me  me 
denomination ;  toutes  ces  qualites  les  ont  rendu  propres  a  devenir  la  me- 
sure  commune  des  valeurs."  —  (Prospectus  d'un  Nouveau  Dictionnaire 
de  Commerce,  p.  121.) 

The  following  extract  from  Park's  Travels  gives  an  example  of  a  simi- 
lar kind :  — "  In  the  early  intercourse  of  the  Mandingoes  with  the  Europe- 
ans, the  article  that  attracted  most  notice  was  iron.  Its  utility  in  forming 
the  instruments  of  war  and  husbandry  made  it  preferable  to  all  others  ; 
and  iron  soon  became  the  measure  (standard)  by  which  the  value  of  all 
other  commodities  was  ascertained.  Thus  a  certain  quantity  of  goods,  of 
whatever  denomination,  appearing  to  be  equal  to  a  bar  of  iron,  constituted, 
in  the  trader's  phraseology,  a  bar  of  that  particular  merchandise.  Twenty 
leaves  of  tobacco,  for  instance,  were  considered  as  a  bar  of  tobacco ;  and 
a  gallon  of  spirits  (or  rather  half  spirits  and  half  water)  as  a  bar  of  rum  ; 
a  bar  of  one  commodity  being  reckoned  equal  in  value  to  a  bar  of  another 
commodity.  As,  however,  it  must  unavoidably  happen,  that,  according 
to  the  plenty  or  scarcity  of  goods  at  market,  in  proportion  to  the  de- 
mand, the  relative  value  would  be  subject  to  continual  fluctuation,  greater 
precision  has  been  found  necessary  ;  and,  at  this  time,  the  current  value 
of  a  single  bar  of  any  kind  is  fixed  by  the  whites  at  two  shillings  sterling. 
Thus,  a  slave,  whose  price  is  .£15,  is  said  to  be  worth  150  bars."  ( Trav- 
els in  the  Interior  of  Africa,  8vo  edit.,  vol.  i.  p.  39.) 

In  common  mercantile  language,  the  giving  of  money  for  a  commodity 
is  termed  buying,  and  the  giving  of  a  commodity  for  money,  selling. 
Price,  unless  when  the  contrary  is  particularly  mentioned,  always  means 
the  value  of  a  commodity  rated  in  money. 

Having  thus  endeavoured  to  explain  the  circumstances  which  led  to  the 
introduction  of  money,  and  to  show  what  it  really  is,  and  what  it  is  not, 


88  Money. 

we  shall  now  proceed  to  investigate  the  laws  by  which  its  value  is  regu- 
lated. It  is  chiefly  from  the  prevalence  of  erroneous  opinions  on  this  sub- 
ject, that  the  theory  of  money  has  been  so  much  misunderstood. 


CHAPTER  II. 

CIRCUMSTANCES  WHICH    REGULATE    THE  EXCHANGEABLE  VALUE  OF  MONET. 

THIS  branch  of  our  subject  naturally  divides  itself  into  two  parts  :  —  1st. 
An  inquiiy  into  the  principles  which  regulate  the  exchangeable  value  of 
money  when  the  power  to  supply  is  not  monopolized  ;  and,  2d.  An  inquiry 
how  far  these  principles  are  liable  to  be  affected  by  the  operation  of 
monopoly. 

Cost  of  Production  regulates  the  Value  of  Money,  when  the  Power  of  Supply  is  not 

monopolized. 

I.  There  does  not  now  seem  to  be  much  room  for  difference  of  opinion 
respecting  the  circumstances  that  regulate  the  value  of  the  precious  met- 
als, and  their  distribution  throughout  the  various  countries  of  the  globe. 
Bullion  is  a  commodity,  on  the  production  of  which  competition  operates 
without  restraint.  It  is  not  subjected  to  any  species  of  monopoly,  and  its 
value  in  exchange  must,  therefore,  be  entirely  regulated  by  the  cost  of  its 
production,  that  is,  by  the  quantity  of  labor  required  to  bring  a  given 
quantity  of  it  to  market. 

If,  in  every  stage  of  society,  it  required  precisely  the  same  quantity  of 
labor  to  produce  a  given  quantity  of  bullion,  its  value  would  be  invariable  ; 
and  it  would  constitute  a  standard  by  which  the  variations  in  the  exchange- 
able value  of  all  other  commodities  could  be  correctly  ascertained.  But 
this  is  not  the  case  either  with  bullion  or  any  thing  else.  And  its  value 
fluctuates  in  the  same  way  as  that  of  other  commodities,  not  only  accord- 
ing to  the  greater  or  less  productiveness  of  the  mines  from  which  it  is 
extracted,  but  also  according  to  the  comparative  skill  of  the  miners,  and 
the  improvements  of  machinery. 

M.  Say  has,  in  his  work  on  Political  Economy,  a  chapter  "  De  la  valeur 
que  la  qualite  d'etre  monnoie  ajoute  a  une  marehandise."  But  a  little 
reflection  will  convince  us,  that  M.  Say  is  mistaken,  and  that  the  circum- 
stance of  the  precious  metals  being  used  as  money  cannot  affect  their 
value.  M.  Say  reasons  on  the  common  hypothesis,  that  an  increase  of 
demand  is  always  productive  of  an  increase  of  value,  an  assumption  totally 
at  variance  with  principle  and  fact.  Value  depends  upon  the  cost  of  pro- 
duction ;  and  it  is  obvious  that  the  cost  of  producing  a  commodity  may  be 
diminished,  whilst  the  demand  for  it  is  increasing.  This  is  so  plain  a 
proposition,  as  hardly  to  require  to  be  substantiated  by  argument.  And  a 
reference  to  the  case  of  cotton  goods,  the  price  of  which  has,  notwithstand- 


Money.  89 

ing  the  vast  increase  of  demand,  been  constantly  on  the  decline  during 
the  last  half  century,  is  enough  to  convince  the  most  skeptical  of  the 
extreme  erroneousness  of  M.  Say's  conclusion.  But,  with  regard  to  the 
particular  case  of  the  precious  metals,  it  is  clear  the  capital  devoted  to  the 
production  of  gold  and  silver  must  yield  the  common  and  ordinary  rate  of 
profit ;  for,  if  it  yielded  more  than  that  rate,  there  would  be  an  influx  of 
capital  to  the  mining  business  ;  and,  if  it  yielded  less,  it  would  be  with- 
drawn, and  vested  in  some  more  lucrative  employment.  And  hence, 
though  the  demand  for  gold  and  silver  should,  from  the  adoption  of  some 
other  commodity  as  an  instrument  of  exchange,  gradually  become  less, 
the  value  of  the  precious  metals  would  not,  on  that  account,  be  reduced. 
A  smaller  supply  would,  indeed,  be  annually  brought  to  market,  and  a 
portion  of  the  capital  formerly  engaged  in  the  mining,  refining,  and  pre- 
paring of  the  metals,  would  be  disengaged  ;  but  as  the  whole  stock  thus 
employed  yielded  only  the  average  rate  of  profit,  the  portion  which  is  not 
withdrawn  must  continue  to  do  so  ;  or,  which  is  the  same  thing,  gold  and 
silver  must  still  continue  to  sell  for  the  same  price.  It  is  no  doubt  true, 
that  where  mines  are,  as  they  almost  always  are,  of  different  degrees  of  pro- 
ductiveness, any  great  falling  off  in  the  demand  for  bullion  might,  by  ren- 
dering it  unnecessary  to  work  the  inferior  mines,  enable  the  proprietors  of 
the  richer  mines  to  continue  their  work,  and  to  obtain  the  ordinary  rate  of 
profit  on  their  capitals,  by  selling  bullion  at  a  reduced  price.  In  this  case 
the  value  of  bullion  would  be  really  diminished ;  but  it  would  be  dimin- 
ished, not  because  there  was  a  falling  off  in  the  demand,  but  because  there 
was  a  greater  facility  of  production.  On  the  other  hand,  an  increased 
demand  for  bullion,  whether  it  arose  from  the  general  suppression  of 
paper  money,  or  from  a  greater  consumption  of  gold  and  silver  in  the 
arts,  or  from  any  other  cause,  would  not,  unless  it  were  necessary,  in 
order  to  procure  the  increased  supply,  to  have  recourse  to  less  produc- 
tive mines,  be  accompanied  by  any  rise  of  price.  If  the  mines  from 
which  the  additional  supplies  were  drawn  were  less  productive  than  those 
already  wrought,  more  labor  would  be  necessary  to  procure  the  same 
quantity  of  bullion,  and,  of  course,  its  price  would  rise.  But,  if  no  such 
increase  of  labor  was  required,  its  price  would  remain  stationary,  though 
a  thousand  times  the  quantity  formerly  required  should  be  demanded. 

After  gold  and  silver  have  been  brought  to  market,  their  conversion 
into  coin  or  manufactured  articles,  depends  entirely  on  a  comparison  of 
the  profits  that  may  be  derived  from  each  operation.  No  bullion  would 
be  taken  to  the  mint  if  it  would  yield  a  greater  profit  by  sending  it  to  a 
silversmith ;  and  no  silversmith  would  work  up  bullion  into  plate,  if  he 
could  turn  it  to  greater  account  by  converting  it  into  coin.  The  value  of 
bullion  and  coin  must,  therefore,  in  countries  where  the  expenses  of  coin- 
age are  defrayed  by  the  state,  nearly  correspond.  When  there  is  any 
unusual  demand  for  bullion  in  the  arts,  coin  is  melted  down  ;  and  when, 
on  the  contrary,  there  is  any  unusual  demand  for  coin,  plate  is  sent  to  the 
mint,  and  the  equilibrium  of  value  maintained  by  its  fusion. 

It  appears,  therefore,  that  whilst  competition  operates  without  restraint 
on  the  production  of  gold  and  silver,  they  are,  like  all  other  things,  pro- 
duced under  similar  circumstances,  valuable  only  in  proportion  to  the 


90  Money. 

cost  of  their  production ;  that  is,  in  proportion  to  the  quantity  of  labor 
necessarily  expended  in  bringing  them  to  market.  And  hence,  while 
they  constitute  the  currency  of  the  commercial  world,  the  price  of  com- 
modities, or  their  value  compared  with  gold  or  silver,  will  vary,  not  only 
according  to  the  variations  in  the  exchangeable  value  of  the  commodities 
themselves,  but  also  according  to  the  variations  in  the  value  of  the  gold  or 
silver  with  which  they  are  compared. 

The  Proportion  between  the  Supply  and  Demand  regulates  the  Value  of  Money, 
when  the  Power  of  Supply  is  monopolized. 

II.  But  if  competition  were  not  allowed  to  operate  on  the  production  of 
the  precious  metals,  if  they  could  be  monopolized  and  limited  in  their 
quantity,  their  exchangeable  value  would  no  longer  be  regulated  by  the 
same  principles.  If,  after  the  limitation,  they  still  continued  to  be  used 
as  money,  and  if,  in  consequence  of  the  improvement  of  society,  manu- 
factured commodities  and  valuable  products  should  be  very  much  multi- 
plied, the  exchanges  which  this  limited  amount  of  money  would  have  to 
perform  would  be  proportionably  increased  ;  and,  of  course,  a  proportion- 
ably  smaller  sum  would  be  appropriated  to  each  particular  transaction ; 
or,  which  is  the  same  thing,  money  prices  would  be  diminished.  When- 
ever the  supply  of  money  is  fixed,  the  amount  of  it,  given  in  exchange 
for  commodities,  must  vary  inversely  as  the  demand,  and  can  le  affected 
by  nothing  else.  If  double  the  usual  supply  of  commodities  be  brought 
to  market  in  a  country  with  a  limited  currency,  their  money  price  will  be 
reduced  a  half;  and  if  only  half  the  usual  supply  be  brought  to  market,  it 
will  be  doubled  ;  and  this,  whether  the  cost  of  their  production  be  increased 
or  diminished.  Produce  is  not  then  exchanged  for  money,  on  the  ground 
that  it  is  a  commodity  capable  of  being  advantageously  used  in  the  arts, 
or  that  an  equal  quantity  of  labor  has  been  expended  on  its  production  ; 
but  because  it  is  the  universal  equivalent  used  by  the  society,  and  that,  as 
such,  it  will  be  willingly  received  for  the  produce  belonging  to  others. 
The  remark  of  Anacharsis,  the  Scythian,  that  gold  and  silver  coins  seemed 
to  be  of  no  use  but  to  assist  in  numeration  and  arithmetic  (Hume's  Essay 
on  Money),  would,  if  confined  to  a  strictly  limited  currency,  be  as  just  as 
it  is  ingenious.  Sovereigns,  livres,  dollars,  &c.,  would  then  really  con- 
stitute mere  tickets  or  counters,  for  computing  the  value  of  property,  and 
transferring  it  from  one  individual  to  another.  And  as  small  tickets,  or 
counters,  would  serve  for  this  purpose  quite  as  well  as  large  ones,  it  is 
unquestionably  true,  that  a  debased  currency  may,  by  first  reducing,  and 
then  limiting  its  quantity,  be  made  to  circulate  at  the  value  it  would  bare 
if  the  power  to  supply  it  were  unrestricted,  and  if  it  were  possessed  of  the 
legal  weight  and  fineness ;  and,  by  still  further  limiting  its  quantity,  it 
might  be  made  to  pass  at  any  higher  value. 

Thus  it  appears,  that  whatever  may  be  the  material  of  the  money  of 
any  country,  whether  it  consist  of  gold,  silver,  copper,  iron,  leather,  salt, 
cowries,  or  paper,  and  however  destitute  it  may  be  of  all  intrinsic  value, 
it  is  yet  possible,  by  sufficiently  limiting  its  quantity,  to  raise  its  value  in 
exchange  to  any  conceivable  extent. 


Money.  91 

Suppose  the  money  of  Great  Britain  consists  of  50,000,000  or  60,000,000 
of  one  pound  notes,  and  that  we  are  prevented  from  increasing  or  dimin- 
ishing this  sum,  either  by  issuing  additional  notes  or  coins,  or  by  with- 
drawing the  notes  already  in  circulation ;  it  is  obvious  that  the  quantity  of 
commodities  for  which  such  notes  would  exchange,  would  increase  or 
diminish  precisely  according  to  the  increase  or  diminution  of  the  com- 
modities brought  to  market.  If  we  suppose  that  ten  times  the  amount 
of  products  that  were  offered  for  sale  when  the  limitation  of  the  cur- 
rency took  place,  are  offered  for  sale  ten  or  twenty  years  afterwards, 
and  that  the  rapidity  of  circulation  has  continued  the  same,  prices 
will  have  fallen  to  one-tenth  of  their  former  amount ;  or,  which  is  the 
same  thing,  the  exchangeable  value  of  the  paper  money  will  have  increased 
in  a  tenfold  proportion  ;  and,  on  the  other  hand,  if  the  products  brought  to 
market  had  diminished  in  the  same  proportion,  the  exchangeable  value  of 
the  paper  money  will  have  been  equally  reduced. 

The  principles  we  have  now  stated  are  of  the  utmost  importance  to  a 
right  understanding  of  the  real  nature  of  money.  Previously  to  the  publi- 
cation of  Mr.  Ricardo's  Principles  of  Political  Economy,  every  writer  of 
authority  maintained,  that  the  value  of  money  depended  entirely  on  the 
relation  between  its  amount  and  the  demand.  But  this  is  true  only  of  a 
gold  or  silver  currency  when  its  quantity  is  limited,  and  of  a  currency 
formed  of  materials  having  little  intrinsic  worth,  as  paper,  when  its  quan- 
tity is  limited,  and  it  is  not  made  convertible,  at  the  pleasure  of  the  holder, 
into  some  more  valuable  commodity,  the  production  of  which  is  under  no 
restraint.  It  is  obvious,  indeed,  without  any  reasoning  on  the  subject, 
that  the  value  of  a  currency  that  costs  little  or  nothing,  can  only  depend 
on  the  proportion  which  its  amount  bears  to  the  commodities  brought  to 
market,  or  to  the  business  it  has  to  perform.  And  wherever  a  currency 
of  this  kind,  or  a  limited  gold  currency,  is  in  circulation,  the  common 
opinion,  that  the  prices  of  commodities  are  regulated  exclusively  by 
the  proportion  between  the  quantity  of  them  brought  to  market,  and  the 
supply  of  money,  and  that  any  considerable  increase  or  diminution  of 
either  will  proportionally  affect  prices,  is  quite  correct.  It  is  altogether 
different,  however,  with  a  currency  consisting  of  gold  or  silver,  or  of  any 
other  commodity  possessed  of  considerable  value,  and  the  supply  of  which 
may  be  increased  to  an  unlimited  extent  by  the  operation  of  unrestricted 
competition. 

The  fluctuations  in  the  supply  of,  and  demand  for,  such  money,  have 
no  permanent  effect  on  its  exchangeable  value ;  this  depends  exclusively 
on  the  comparative  cost  of  its  production.  If  a  sovereign  commonly  ex- 
changes for  a  couple  of  bushels  of  wheat,  or  a  hat,  it  is  because  the  same 
labor  is  required  for  its  production  as  for  that  of  either  of  these  commodi- 
ties; while,  if  with  a  limited  and  inconvertible  paper  money,  they  exchange 
for  a  one  pound  note,  it  would  be  because  such  was  the  proportion  which, 
as  a  part  of  the  mass  of  commodities  offered  for  sale,  they  bore  to  the 
supply  of  paper  or  money  in  the  market.  This  proportion  would,  it  is  evi- 
dent, be  not  only  immediately,  but  permanently,  affected  by  an  increase 
or  diminution  either  of  paper  or  commodities.  But  the  relation  which 
commodities  bear  to  a  freely  supplied  metallic  currency,  could  not  be 


92  Money. 

permanently  changed,  except  by  a  change  in  the  cost  of  producing  the 
commodities  or  the  metals. 

Our  readers  must  not  conceive  from  what  is  now  stated,  that  we  mean 
to  contend  that  the  value  of  gold  or  silver  is  never  affected  by  variations 
of  supply  and  demand.  Such  an  opinion  would  be  altogether  erroneous. 
At  the  same  time  it  must  be  admitted,  that  their  value  is  much  less  affect- 
ed by  such  variations,  than  that  of  almost  any  other  commodity.  Their 
great  durability  precludes  the  possibility  of  any  sudden  diminution  of  their 
quantity,  while  the  immense  surface  over  which  they  are  spread,  and  the 
various  purposes  to  which  they  are  applied,  prevent  any  unusual  produc- 
tiveness of  the  mines  from  speedily  lowering  their  value.  An  extraordi- 
nary event,  such  as  the  discovery  of  America,  or  the  establishment  of  an 
intercourse  between  a  country  where  bullion  bore  a  high  value,  and  one 
where  its  value,  from  the  greater  facility  of  its  production,  was  compara- 
tively low,  would,  by  causing  a  sudden  exportation  and  importation,  raise 
its  value  in  the  one  country,  and  sink  it  in  the  other.  But  such  events 
must  necessarily  be  of  very  rare  occurrence.  And  although  the  different 
productiveness  of  the  mines,  to  which,  in  the  progress  of  society,  recourse 
must  be  had,  and  the  successive  improvements  in  the  art  of  mining  and 
working  metals,  must  render  the  value  of  gold  and  silver  very  different  at 
distant  periods,  it  is  abundantly  uniform  to  secure  us  against  all  risk  of 
sudden  and  injurious  fluctuations. 

Such  are  the  circumstances  which  regulate  the  value  of  money  ;  first, 
when  the  power  to  supply  it  is  not  subjected  to  any  species  of  monopoly ;  and, 
second,  when  it  is  monopolized  and  limited.  In  the  former  case,  its  value 
depends,  like  that  of  all  other  commodities,  on  the  cost  of  its  production  ; 
while,  in  the  latter  case,  its  value  is  totally  unaffected  by  that  circumstance, 
and  depends  entirely  on  the  extent  to  which  it  has  been  issued,  compared 
with  the  demand. 

The  conclusions  deducible  from  the  fundamental  principle  we  have 
thus  endeavoured  to  establish,  are  of  the  utmost  importance.  A  metallic 
currency,  on  the  coinage  of  which  a  high  seignorage  or  duty  was  charged, 
and  a  paper  currency  not  convertible  into  the  precious  metals,  were  occa- 
sionally seen  to  circulate  at  the  same  value  with  a  metallic  currency  of 
full  weight,  and  which  had  been  coined  at  the  expense  of  the  state.  But 
no  rational  or  consistent  explanation  of  these  apparently  anomalous  results 
could  be  given  until  the  effects  produced  by  limiting  the  supply  of  money 
had  been  accurately  appreciated.  Now,  however,  that  this  has  been  done, 
all  these  difficulties  have  disappeared.  The  theory  of  money  has  been  per- 
fected, and  we  are  enabled  to  show  what,  under  any  given  circumstances, 
would  be  the  effect  of  imposing  a  seignorage,  or  of  issuing  an  inconverti- 
ble paper  currency. 

Seignorage,  strictly  speaking,  means  only  the  clear  revenue  derived  by 
the  state  from  the  coinage  ;  but  it  is  now  commonly  used  to  express  every 
deduction  made  from  the  bullion  brought  to  the  mint  to  be  coined,  whether 
on  account  of  duty  to  the  state,  or  of  the  expense  of  coinage  (properly 
brassage].  We  always  use  the  phrase  in  its  more  enlarged  sense 


Money.  93 


CHAPTER  III. 

A  MODERATE  SEIGNORAGE  ON  COINED  MONEY  SHOWN  TO  BE  ADVANTAGEOUS. 
PRINCIPLES  WHICH    SHOULD  REGULATE  ITS  AMOUNT. 

Reasons  why  a  Seignorage  should  be  imposed  on  Coined  Money. 

THE  government  of  almost  every  country  has  retained  the  power  of 
coining  exclusively  in  its  own  hands.  In  antiquity  this  privilege  was  re- 
served merely  to  prevent  the  confusion  that  must  attend  the  circulation  of 
coins  of  different  denominations,  were  individuals  permitted  to  issue  them 
at  pleasure,  and  to  give  the  public  greater  security,  that  the  stamp  should 
truly  indicate  the  weight  and  fineness  of  the  metal.  (Le  Blanc,  Traite 
Historique  des  Monnoyes  de  France,  p.  90,  ed.  Amst.  1692.)  But  in 
more  modern  times  it  has  been  used,  not  only  as  a  means  of  affording  a 
better  guarantee  to  the  public,  but  also  of  increasing  the  revenues  of  the 
state.  As  to  the  expediency  of  this,  however,  much  difference  of  opinion 
has  existed.  It  has  been  contended  that  the  state  ought  in  no  circum- 
stances to  charge  any  duty  on  coined  money  ;  and  that  the  expenses  of 
the  mint  should  always  be  defrayed  by  the  public.  In  this  opinion  we 
cannot  concur;  and  it  appears  to  us  that  the  reasoning  of  Dr.  Smith,  in 
favor  of  a  moderate  seignorage,  is  quite  unanswerable.  No  good  reason  has 
yet  been  given  why  those  who  want  coins  should  not  have  to  pay  the  ex- 
penses of  manufacturing  them.  Coinage,  by  saving  the  trouble  and  expense 
attending  the  weighing  and  assaying  of  bullion,  indisputably  adds  to  the 
value  of  the  precious  metals.  It  renders  them  fitter  to  perform  the  func- 
tions of  a  circulating  medium.  A  sovereign  is  of  greater  value  than  a 
piece  of  pure  unfashioned  gold  bullion  of  the  same  weight ;  and  for  this 
plain  reason,  that  while  it  is  equally  well  adapted  with  the  bullion  for  be- 
ing used  in  the  arts,  it  is  better  adapted  for  being  used  as  money,  or  in  the 
exchange  of  commodities.  Why,  then,  should  government  be  prevented 
from  charging  a  seignorage,  or  duty  on  coins,  equal  to  the  expenses  of 
the  coinage,  or,  which  is  the  same  thing,  to  the  value  which  it  adds  to  the 
bullion  ?  Those  who  contend  that  the  state  ought  to  defray  the  expense 
of  the  coinage,  might,  with  equal  cogency  of  reasoning,  contend  that  it 
ought  to  defray  the  expense  of  manufacturing  gold  and  silver  teapots, 
vases,  &c.  In  both  cases  the  value  of  the  raw  material,  or  bullion,  is  in- 
creased by  the  cost  of  workmanship.  And  it  is  only  fair  and  reasonable, 
that  those  who  carry  bullion  to  the  mints,  as  well  as  those  who  carry  it  to 
the  jewellers,  should  have  to  pay  the  expenses  necessarily  attending  its 
conversion  into  coin. 

But  there  are  other  reasons  why  a  seignorage,  to  this  extent  at  least, 
ought  to  be  exacted.  Wherever  the  expenses  of  coinage  are  defrayed  by 
the  state,  an  ounce  of  coined  gold  or  silver,  and  an  ounce  of  gold  or  silver 
bullion,  must  be  very  nearly  of  the  same  value.  And,  hence,  whenever 
it  becomes  profitable  to  export  the  precious  metals,  coins,  in  the  manufac- 


94  Money. 

ture  of  which  a  considerable  expense  has  been  incurred,  are  sent  abroad 
indifferently  with  bullion.  It  has,  indeed,  been  attempted,  by  prohibiting 
the  exportation  of  coins,  to  prevent  the  loss  that  may  thus  be  occasioned  ; 
but  these  efforts  have  proved  singularly  ineffectual,  and  have,  indeed,  been 
abandoned  in  this  and  most  other  countries.  Admitting,  however,  that  it 
were  possible,  which  most  certainly  it  is  not,  to  prevent,  or  at  least, 
materially  limit,  the  clandestine  exportation  of  coins,  it  is  conceded  on  all 
hands  to  be  quite  nugatory  to  attempt  to  prevent  their  conversion  into 
bullion.  In  this  there  is  almost  no  risk.  And  the  security  with  which 
their  fusion  can  be  effected,  and  the  trifling  expenses  attending  it,  will 
always  enable  them  to  be  melted  down  and  sent  abroad  whenever  there  is 
any  unusual  foreign  demand  for  the  precious  metals.  This  exportation 
would,  however,  be  either  prevented  or  materially  diminished  by  the 
imposition  of  a  seignorage  or  duty,  equal  to  the  expense  of  the  coinage. 
The  coins  being,  by  this  means,  rendered  more  valuable  than  bullion, 
would  be  kept  at  home  in  preference  :  and  if,  as  Dr.  Smith  has  observed, 
it  became  necessary  on  any  emergency  to  export  coins,  they  would,  most 
likely,  be  reimported.  Abroad,  they  would  be  only  worth  so  much  bull- 
ion, while  at  home  they  would  be  worth  this  much,  and  the  expense  of 
coinage  besides.  There  would,  therefore,  be  an  obvious  inducement  to 
bring  them  back,  and  the  supply  of  currency  would  be  maintained  at  its 
proper  level,  without  its  being  necessary  for  the  mint  to  issue  fresh  coins. 

Besides  relieving  the  country  from  the  useless  expenses  attending  the 
coinage  of  the  money  exported  to  other  countries  as  an  article  of  com- 
merce, the  imposition  of  a  moderate  seignorage  would  either  totally  pre- 
vent, or  at  least  lessen,  that  fusion  of  the  heavier  coins,  which  always  takes 
place  whenever  a  currency  becomes  degraded  or  deficient  in  weight. 
Previously  to  the  great  recoinage  in  1773,  the  quantity  of  bullion  contained 
in  the  greater  number  of  the  gold  coins  in  circulation  was  reduced  nearly 
two  per  cent,  below  the  mint  standard  ;  and,  of  course,  the  price  of  gold 
bullion,  estimated  in  this  degraded  currency,  rose  two  per  cent.,  or  from 
£3  17s.  and  10£d.,  its  mint  price,  to  <£4.  This,  however,  was  too  minute 
a  difference  to  be  taken  into  account  in  the  ordinary  business  of  buying 
and  selling.  And  the  possessors  of  coins  fresh  from  the  mint,  or  of  full 
weight,  not  obtaining  more  produce  in  exchange  for  them  than  for  the 
lighter  coins,  sent  the  former  to  the  melting-pot,  and  then  sold  them  as 
bullion.  But  it  is  easy  to  see  that  this  fusion  would  have  been  effectually 
prevented  had  the  coins  been  loaded  with  a  seignorage  of  two  per  cent. 
The  heavy  coins  could  not  then  have  been  melted  without  losing  the  value 
given  them  by  the  seignorage  ;  and  this  being  equal  to  the  excess  of  the 
market  price  of  bullion  above  the  mint  price,  nothing  would  have  been 
gained  by  the  melters.  Had  the  seignorage  been  less  than  the  average 
degradation  of  the  coin,  or  two  per  cent. ;  had  it,  for  example,  been  only 
one  per  cent.,  all  those  coins  whose  value  was  not  more  than  one  per  cent, 
degraded  below  their  mint  standard,  might  have  been  melted  ;  but  if  the 
seignorage  had  exceeded  two  per  cent,  no  coins  whatever  could  have 
been  melted  until  the  degradation  had  increased  to  the  same  or  a  greater 
extent. 

This  reasoning  proceeds  throughout  on  the  supposition  that  the  coins  on 


Money.  95 

which  the  seignorage  is  charged  are  not  issued  in  excess.  If  they  were, 
the  above-mentioned  consequences  would  not  follow.  Their  too  great 
multiplication  might  sink  them  even  below  their  value  as  bullion,  and  oc- 
casion their  immediate  fusion  or  exportation.  So  long,  however,  as  the 
state  only  coins  the  bullion  brought  to  the  mint  by  individuals,  there  is  no 
risk  of  this  happening.  No  one,  we  may  depend  upon  it,  will  ever  carry 
bullion  to  that  establishment,  and  pay  the  expenses  of  its  coinage,  unless 
the  coins  be  thereby  rendered  so  much  more  valuable  than  the  unfashioned 
metal. 

Should  the  government  choose  to  buy  bullion,  and  coin  money  on  its  own 
account,  it  might,  by  a  little  attention,  easily  avoid  all  over-issue.  Sup- 
pose the  seignorage  were  two  per  cent.,  then  any  given  weight  of  coins 
of  the  mint  standard  ought,  provided  the  currency  be  not  redundant,  to 
purchase  two  per  cent,  more  than  the  same  weight  of  bullion.  So  long, 
therefore,  as  this  proportion  is  preserved  between  coined  money  and  bull- 
ion, it  shows  that  the  proper  supply  of  currency  has  been  issued.  If  the 
value  of  the  coins  decline  below  this  limit,  too  many  of  them  must  have 
got  into  circulation ;  and,  if,  on  the  contrary,  their  value  increase,  the  sup- 
ply is  too  limited,  and  an  additional  quantity  may  be  advantageously 
issued. 

If  the  Supply  of  Coins  could  be  sufficiently  limited,  a  high  Seignorage  might  be 

exacted. 

It  is  easily  seen,  from  the  principles  already  established,  that  it  is  not 
necessary  that  the  charge  for  seignorage  should  be  limited  to  the  mere  ex- 
penses of  coinage.  It  may,  without  injury  to  any  individual,  be  carried 
considerably  farmer.  Provided  the  amount  of  the  coins  on  which  a  seign- 
orage is  imposed,  be  limited  to  the  amount  that  previously  circulated  in 
the  country,  its  imposition,  to  whatever  height  it  might  be  carried,  would 
not  effect  their  exchangeable  value.  The  state  having  the  exclusive  priv- 
ilege of  coining,  no  additional  supply  of  money  could  be  brought  to 
market.  And  supposing  the  business  of  society  to  continue  the  same ; 
that  is,  supposing  the  same  quantity  of  commodities  are  brought  to  market, 
and  exchanged  for  the  same  amount  of  coins  of  the  same  denomination, 
it  is  clear  prices  could  not  be  in  any  way  affected.  Invariability  of  value 
is  the  great  desideratum  in  money  ;  and  provided  this  be  maintained,  as  it 
always  may  be,  by  properly  limiting  the  quantity  in  circulation,  it  is  of  no 
consequence  whether  the  weight  of  the  coins  be  increased  or  diminished. 
A  hat  that  had  previously  to  the  imposition  of  the  seignorage  sold  for  a 
sovereign  would  still  fetch  one.  The  sovereign,  it  is  true,  has  been  dimin- 
ished in  size ;  but  as  its  value  is  increased  in  proportion  to  this  diminu- 
tion, and  as  small  coins  are  equally  well  adapted  to  serve  every  purpose 
of  a  circulating  medium  as  those  that  are  larger,  society  would  not 
suffer  any  inconvenience  from  that  circumstance.  It  is  certain,  indeed, 
that  if  the  monopoly  were  not  rigorously  enforced,  or  if  individuals  were 
permitted  to  issue  supplies  of  money  from  private  mints,  free  from  the 
charge  of  seignorage,  the  increase  of  quantity  would  speedily  sink  the 
value  of  the  whole  coins  in  circulation  to  a  level  with  the  cost  of  those 


96  Money. 

produced  on  the  lowest  terms ;  so  that  the  coins  on  which  a  high  seignor- 
age  had  been  charged  would  not  be  more  valuable  than  those  exempted 
from  that  charge.  But,  wherever  the  supply  of  money  is  limited,  and 
competition  excluded,  this  principle  ceases  to  operate,  and  its  value  is  then 
dependent  upon  the  proportion  which  the  total  quantity  in  circulation 
bears  to  the  total  demand.  This  principle  is  further  elucidated  in  a  very 
able  article  on  seignorage,  by  Mr.  Tooke,  printed  in  the  Appendix  (p. 
180)  to  the  Lords'  Report  o/1819. 

Difficulty  of  limiting  sufficiently  the  Supply  of  Coins,  and  Necessity  of  imposing 
only  a  moderate  Seignorage. 

It  must  not,  however,  be  concealed,  that  if  it  were  attempted  to  charge 
a  very  high  seignorage,  it  would  be  extremely  difficult  to  limit  the  supply 
of  coins.  The  inducement  to  counterfeit  money  would,  under  such  cir- 
cumstances, be  very  greatly  increased,  while  the  chances  of  detection 
would  be  very  much  diminished.  It  would  not  then  be  necessary,  in  order 
to  derive  a  profit  from  counterfeit  coins,  that  they  should  be  manufactured 
of  a  baser  metal.  The  saving  of  a  heavy  charge  on  account  of  seignorage 
might  of  itself  afford  a  sufficient  profit ;  and  this  could  be  derived,  though 
the  metal  contained  in  the  forged  coins  were  of  the  standard  purity.  But, 
though  it  might,  for  this  reason,  and  most  probably  would,  be  quite  impos- 
sible to  limit  the  supply  of  currency,  and  consequently  to  sustain  its  value, 
were  an  exorbitant  seignorage  charged,  the  same  difficulty  would  not 
stand  in  the  way  of  a  moderate  one.  The  nefarious  business  of  counter- 
feiting could  not  be  carried  on,  did  it  not  yield  a  sufficient  premium  to  the 
forgers  to  indemnify  them  for  the  risks  and  odium  to  which  they  are  ex- 
posed. A  seignorage  less  than  this  would  be  no  encouragement  to  the 
issue  of  counterfeit  coins.  And  though  it  might  be  difficult  to  form  any 
very  precise  estimate  of  what  this  premium  might  be,  it  is  pretty  certain 
it  would  not  be  under  from  four  to  five  per  cent. 

Amount  of  the  Gold  Coinage  since  the  Accession  of  James  II. 

It  appears  from  an  account  inserted  in  the  Appendix  to  the  Report  drawn 
up  by  the  Lords  in  1819,  that  new  gold  coins,  of  the  value  of  £  74,501,586 
had  been  issued  by  the  mint  between  the  1st  January,  1760,  and  the  13th 
April,  1819.  To  this  sum  we  have  to  add  nearly  fifty  millions  since  issued, 
making  in  all  an  issue  of  about  one  hundred  and  twenty-four,  or  one  hundred 
and  twenty-five  millions  of  gold  coins  since  the  accession  of  George  III.  But 
the  seignorage  was  remitted  in  the  reign  of  Charles  II. ;  and  it  appears  from 
theaccounts  published  by  Mr.  Ruding  and  others,  that  ,£28, 172, 149  of  new 
gold  coins  were  issued  in  the  period  between  the  accession  of  James  II.  ( 1685) 
and  the  demise  of  George  II.  ;  so  that,  in  all,  upwards  of  one  hundred  and 
fifty-two  millions  of  gold  coins  have  been  coined  at  the  expense  of  the  state, 
and  issued  since  the  remission  of  the  seignorage.  We  shall  be  considera- 
bly within  the  mark,  if  we  estimate  the  average  annual  expense  attending 
this  coinage  at  £  12,000.  Lord  Liverpool  states,  that  the  entire  expense  of 
the  mint,  from  1777  to  1803,  amounted  to  .£488,441,  which  gives  an  av- 


Money.  97 

erage  expenditure  of  ^18,786  a  year.  (Liverpool  On  Coins,  p.  156.)  And, 
on  this  supposition,  it  will  be  found  that  the  expense  of  the  coinage  of 
gold  only  has  amounted,  during  the  one  hundred  and  fifty-two  years  which 
have  elapsed  since  the  accession  of  James  II.,  to  i£  1,824,000.  But,  if  a 
low  seignorage  of  no  more  than  three  or  four  per  cent,  had  been  charged 
on  the  gold  coins,  it  would  have  produced  four  and  a  half  or  six  millions  ; 
a  sum  which  might  have  been  collected  without  injury  to  any  individual, 
and  which,  besides  defraying  the  entire  expenses  of  the  coinage,  would 
have  left  a  considerable  surplus  revenue. 

Expense  of  the  Coinage  of  Gold  and  Silver.  —  History  of  Seignorage  in  England. 

In  his  evidence  before  the  Lords'  Committee  in  1819,  Mr.  Mushet  stated, 
that,  with  the  improved  machinery  now  in  use  in  the  mint,  gold  coin  could 
be  manufactured  for  about  10s.  percent.  (Minutes  of  Evidence,  p.  207.) 
And  the  expense  of  the  manufacture  of  the  silver  coin  may,  we  believe, 
be  taken  at  about  three  times  as  much,  or  one  and  a  half  per  cent.  In 
France  the  coinage  of  gold  costs  0'29  per  cent.,  and  silver  T50  per  cent.; 
in  Russia  the  gold  costs  0'85,  and  the  silver  2-95  per  cent.  (Storch,  torn, 
vi.,  p.  74.) 

The  precise  period  when  a  seignorage  began  to  be  charged  upon  Eng- 
lish silver  coins  has  not  been  ascertained.  It  must,  however,  have  been 
very  early.  Mr.  Ruding  mentions,  that  in  a  mint  account  of  the  6th 
Henry  III.,  one  of  the  earliest  he  had  met  with,  the  profit  on  £  3,898  Os. 
4d.  of  silver  coined  at  Canterbury,  is  stated  to  be  <£  97  9s.,  being  exactly 
6d.  a  pound,  of  which  the  king  had  £  60  18s.  3£d.,  and  the  bishop  the 
residue.  (Annals  of  the  British  Coinage,  vol.  i.,  p.  179,  4to.  ed.)  In 
the  28th  Edward  I.  the  seignorage  amounted  to  Is.  2£d.  per  pound :  5£d. 
being  allowed  to  the  master  of  the  mint,  to  indemnify  him  for  the  expenses 
of  coinage,  and  9d.  to  the  crown  as  its  profit.  Henry  VI.  increased  the 
master's  allowance  to  IQd.  and  Is.  2d.,  and  the  king's  to  Is.  and  2s.  In 
the  reign  of  Edward  IV.  the  seignorage  varied  from  4s.  6d.  to  Is.  6rf.  It 
was  reduced  to  Is.  in  the  reign  of  Henry  VII. ;  but  was  prodigiously  aug- 
mented in  the  reigns  of  his  successors,  Henry  VIII.  and  Edward  VI., 
whose  wild  and  arbitrary  measures  produced,  as  will  be  afterwards  shown, 
the  greatest  derangement  of  the  currency.  During  the  lengthened  reign 
of  Elizabeth,  the  seignorage  varied  from  Is.  Gd.  to  2s.  per  pound ;  at 
which  sum  it  continued,  with  very  little  variation,  until  the  18th  of  Charles 
II.  (1666),  when  it  was  totally  remitted. 

From  this  period  down  to  1817  no  seignorage  was  charged  on  the  sil- 
ver coin  ;  but  a  new  system  was  then  adopted.  Silver  having  been  un- 
derrated in  relation  to  gold  in  the  mint  proportion  of  the  two  metals  fixed 
in  1718,  heavy  silver  coins  were  withdrawn  from  circulation,  and  gold  only 
being  used  in  all  the  larger  payments,  it  became,  in  effect,  what  silver  had 
formerly  been,  the  standard  of  the  currency.  The  act  of  56th  George  III., 
regulating  the  present  silver  coinage,  was  framed,  not  to  interfere  with 
this  arrangement,  but  so  as  to  render  silver  entirely  subsidiary  to  gold. 
For  this  purpose  it  is  made  legal  tender  only  to  the  extent  of  40s. ;  and 
66s.  instead  of  62s.  are  coined  out  of  a  pound  of  troy,  the  4*. 


98  Money. 

retained  as  a  seignorage,  which,  therefore,  amounts  to  6^f-  Per  cent.  The 
power  to  issue  silver  is  vested  exclusively  in  the  hands  of  government ; 
who  have  it,  therefore,  in  their  power  to  avoid  throwing  too  much  of  it  into 
circulation,  and,  consequently,  to  prevent  its  fusion,  until  the  market  price 
of  silver  shall  have  risen  to  above  5s.  6d.  an  ounce. 

This  arrangement  was  censured  in  the  debates  on  the  question  of  re- 
turning to  cash  payments  in  1819.  It  was  contended,  that  the  overvalua- 
tion of  silver  with  respect  to  gold  would  render  it  the  interest  of  every 
debtor  to  discharge  his  debts  with  silver,  and  that  the  gold  coins  would  in 
consequence  be  driven  from  circulation,  and  exported  to  other  countries. 
The  result  has  shown  that  this  opinion  was  altogether  erroneous.  Debt- 
ors cannot  discharge  their  debts  by  silver  payments,  for  it  is  only  legal 
tender  to  the  extent  of  40s.  ;  and  no  creditor  can  be  compelled,  or  would 
be  disposed  to  take  it  inpayment  of  a  larger  debt,  except  at  its  real  value. 
Those  who  wish  for  a  further  elucidation  of  this  subject,  may  refer  to 
Mr.  Mushet's  evidence  in  the  Appendix  to  the  Lords'1  Report  "  On  the  Ex- 
pediency of  the  Bank's  resuming  Cash  Payments,"  where  it  is  discussed  at 
great  length,  and  in  the  most  able  manner. 

In  the  18th  of  Edward  III.,  the  period  when  we  begin  to  have  authentic 
accounts  of  the  gold  coinage,  a  pound  troy  of  gold  bullion  was  coined  into 
florins,  of  the  value  of  <£15.  Of  this  sum  only  ^13  16s.  6d.  were  given 
to  the  person  who  brought  the  bullion  to  be  coined  :  .£1  3s.  6d.  being  re- 
tained as  seignorage,  of  which  3s.  6d.  went  to  the  master,  and^l  to  the 
king.  But  it  appears,  from  the  mint  indentures,  that  the  seignorage  on  the 
coinage  of  nobles  for  the  same  year  amounted  to  only  8s.  4d.  And,  from 
this  remote  period  to  the  accession  of  the  Stuarts,  with  the  exception  of 
the  coins  issued  in  the  4th  and  5th  Edward  IV.  and  the  34th,  36th,  and 
37th  Henry  VIII.,  the  total  charge  of  coining  a  pound  weight  of  gold  bull- 
ion seldom  exceeded  7s.  or  8s.  money  of  the  time.  In  the  2d  James  I.,  a 
pound  weight  of  gold  bullion  was  coined  into  <£40  10s.  ;  a  seignorage  of 
<£!  10s.  being  deducted,  6s.  5d.  of  which  went  to  the  master,  and  £1  3s. 
Id.  to  the  crown.  The  seignorage  on  gold  was  remitted  at  the  same  time 
(18th  Charles  II.)  with  the  seignorage  on  silver,  and  has  not  since  been 
revived.  In  the  tables  annexed  to  this  article,  the  reader  will  find  a  de- 
tailed account  of  the  amount  of  the  seignorage  and  its  fluctuations  in  dif- 
ferent periods. 

As  the  regulation  of  the  seignorage  then  depended  entirely  on  the 
will  of  the  sovereigns,  we  need  not  be  surprised  at  the  variations  in  its 
amount  at  different  periods,  or  that  it  should  have  fluctuated  according  to 
their  necessities  and  caprices.  It  was,  indeed,  hardly  possible  that  it  should 
have  been  otherwise.  Our  ancestors  were  totally  ignorant  of  the  principle, 
by  a  strict  adherence  to  which  the  imposition  of  a  seignorage  can  alone  be 
rendered  advantageous.  They  considered  it  as  a  tax  which  might  be  in- 
creased and  diminished  at  pleasure.  And,  far  from  taking  any  steps  to  limit 
the  quantity  of  coin  in  circulation,  so  as  to  maintain  its  value,  they  frequently 
granted  to  corporate  bodies,  and  even  to  individuals,  the  privilege  of  issu- 
ing coins,  not  subjected  to  a  seignorage.  (Ruding's  Annals  of  the  Coin- 
age, vol.  i.,  p.  185.  When  the  right  of  seignorage  was  abolished,  there  was 
a  pension,  payable  out  of  the  profits  derived  from  it,  granted  under  the 


Money.  99 

great  seal,  for  twenty-one  years,  to  Dame  Barbara  Villiers,  which  the 
legislature  ordered  to  be  made  good  out  of  the  coinage  duties  imposed  by 
that  act.  See  Ruding,  in  loco  citato,  and  Leake's  Historical  Account  of 
English  Money,  2d  ed.,  p.  356.)  No  wonder,  therefore,  that  it  should  have 
been  considered  as  a  most  unjust  and  oppressive  tax,  and  that  its  abolition 
should  have  been  regarded  as  a  very  advantageous  measure. 

Remedy  or  Shere. 

Besides  the  revenue  arising  from  the  seignorage,  our  kings  formerly  de- 
rived a  small  revenue  from  the  remedy  or  shere.  It  having  been  found 
impossible  to  coin  money  corresponding  in  every  particular  of  weight  and 
purity,  with  a  given  standard,  a  small  allowance  is  always  made  to  the 
master  of  the  mint,  whose  coins  are  held  to  be  properly  executed,  provided 
their  imperfections,  whether  on  the  one  side  or  the  other,  do  not  exceed  this 
allowance,  or  remedy.  Its  amount  has  varied  very  little  since  the  riegn 
of  Edward  III. ;  having,  during  this  long  period,  generally  been  one- 
eighth  part  of  a  carat,  or  30  grains  of  pure  gold  per  pound  of  gold  bull- 
ion, and  two  pennyweights  of  pure  silver  per  pound  of  standard  silver 
bullion.  By  the  law  of  1816,  the  remedy  for  gold  coins  is  fixed  at  12 
grains  per  Ib.  in  the  weight,  and  one  sixteenth  part  of  a  carat  in  the  fine- 
ness. The  remedy  for  silver  is  the  same  as  before. 

It  does  not  appear  that  our  princes  derived  any  considerable  advantage 
from  the  remedy  previously  to  the  reign  of  Elizabeth.  But  she,  by  reduc- 
ing the  master's  allowance  for  the  expense  of  coinage  from  Is.  2d.  to  8d. 
obliged  him  to  come  as  near  as  possible  to  the  lowest  limit  allowed  by  the 
remedy.  Had  the  coins  been  delivered  to  those  who  brought  bullion  to 
the  mint  by  weight,  the  queen,  it  is  plain,  would  have  gained  nothing  by 
this  device ;  but,  in  the  latter  part  of  her  reign,  and  the  first  seventeen  years 
of  that  of  her  successor,  James  I.,  they  were  delivered  by  tale,  so  that  the 
crown  saved,  in  this  way,  whatever  additional  sum  it  might  otherwise  have 
been  necessary  to  pay  the  master  for  the  expenses  of  coinage.  In  the 
great  recoinage  in  the  reign  of  William  HI.,  the  profit  arising  from  the 
remedy  amounted  to  only  8s.  on  every  hundred  pounds  weight  of  bullion ; 
and  the  coinage  is  now  conducted  with  so  much  precision,  and  the  coins 
issued  so  near  to  their  just  weight,  that  no  revenue  is  derived  from  this 
source. 

Seignorage  in  France. 

The  continental  princes  have,  we  believe,  without  any  exception, 
charged  a  seignorage  on  the  coinage  of  money.  In  France  this  duty  was 
levied  at  a  very  early  period.  By  an  ordinance  of  Pepin,  dated  in  1755, 
a  pound  of  silver  bullion  is  ordered  to  be  coined  into  twenty-two  pieces, 
of  which  the  master  of  the  mint  was  to  retain  one,  and  the  remaining 
twenty-one  were  to  be  delivered  to  the  merchant  bringing  the  bullion  to 
the  mint.  (Le  Blanc,  p.  87.)  There  are  no  means  of  ascertaining  the 
amount  of  the  seignorage  taken  by  the  successors  of  Pepin,  until  the  reign 
of  Saint  Louis  (1226-1270),  who  coined  the  marc  of  silver  into  58  sols, 


100  Money. 

while  he  only  delivered  54  sols,  7  deniers,  to  the  merchant ;  at  this  period, 
therefore,  the  seignorage  amounted  to  a  sixteenth  part  of  the  marc,  or  to 
6^5-  per  cent.  It  was  subsequently  increased  or  diminished  without  re- 
gard to  any  fixed  principle.  In  the  great  recoinage  in  1726,  it  amounted, 
on  the  gold  coin,  to  7T5^  per  cent.,  and  to  5f  per  cent,  on  silver.  In  1729, 
the  mint  price,  both  of  gold  and  silver,  were  augmented,  and  the  seignor- 
age on  the  former  reduced  to  5^£  per  cent.,  and  on  the  latter  to  4£  per 
cent.  A  further  reduction  took  place  in  1755  and  1771,  when  the  seign- 
orage on  gold  was  fixed  at  1-j*^  per  cent.,  and  on  silver  at  l/^  per  cent. 
At  this  moment  the  seignorage  in  France  hardly  covers  the  expense  of 
coinage,  being  only  about  •£  per  cent,  on  gold,  and  1£  per  cent,  on  silver. 
(Necker,  Administration  des  Finances,  torn,  iii.,  p.  8.  —  Dr.  Smith  has 
stated,  vol.  ii.,  p.  438,  on  the  authority  of  the  "  Dictionnaire  des  Monnoies, 
par  Abot  de  Bazinghen,"  that  the  seignorage  on  French  silver  coins,  in 
1775,  amounted  to  about  eight  per  cent.  The  error  of  Bazinghen  has 
been  pointed  out  by  Gamier,  in  his  translation  of  the  Wealth  of  Nations.) 


CHAPTER  IV. 

EXPENSE  OF  A  CURRENCY  CONSISTING  OF  THE  PRECIOUS  METALS. 
Estimate  of  the  Expense  of  a  Metallic  Currency. 

THE  imposition  of  a  moderate  seignorage  has,  however,  but  a  very  in- 
considerable effect  in  reducing  the  expense  of  a  metallic  currency.  This, 
which  is  much  greater  than  is  generally  imagined,  does  not  consist  in  the 
coinage,  which  is  comparatively  trifling,  but  in  the  great  amount  of  gold 
and  silver  required  for  the  purpose.  If,  for  example,  the  currency  of 
Great  Britain  consisted  wholly  of  gold,  it  would  amount  to  at  least  fifty 
millions  of  sovereigns ;  and  if  the  customary  rate  of  profit  were  six  per 
cent.,  it  would  cost  three  millions  a  year.  For  had  these  fifty  millions  not 
been  employed  as  money,  it  would  have  been  vested  in  branches  of  indus- 
try, in  which,  besides  affording  employment  to  thousands  of  individuals,  it 
would  have  yielded  six  per  cent.,  or  three  millions  a  year,  of  net  profit  to 
its  possessors.  But  this  is  not  the  only  loss.  The  fifty  millions  would  not 
merely  be  withheld  from  the  great  work  of  production,  and  the  country 
deprived  of  the  revenue  derived  from  its  employment,  but  it  would  be  per- 
petually diminished.  The  wear  and  tear  of  the  coins  is  by  no  means  in- 
considerable ;  and  supposing  the  expenses  of  the  coinage  were  defrayed 
"by  a  moderate  seignorage,  the  deficiency  in  the  weight  of  the  old  worn 
coins  must,  on  their  being  called  in  to  be  recoined,  be  made  up  by  the 
public.  There  is,  besides,  a  constant  loss  from  shipwrecks,  fire,  and 
other  accidents.  When  due  allowance  is  made  for  these  causes  of  waste, 
it  would  not,  perhaps,  be  too  much  to  suppose,  that  a  country,  which  had 


Money.  101 

fifty  millions  of  gold  coins  in  circulation,  would  have  annually  to  import 
the  hundredth  part  of  this  sum,  or  half  a  million  of  coins  to  maintain  its 
currency  at  its  proper  level. 

Thus  it  appears,  that,  were  the  customary  rate  of  profit  in  Great  Britain 
six  per  cent.,  it  would  cost  3£  millions  a  year  to  maintain  fifty  millions  of 
gold  coins  in  circulation.  It  is  indeed  true,  that  a  reduction  of  the  rate 
of  profit  would  proportionally  reduce  the  amount  of  this  expense,  though 
as  the  reduced  expense  would  still  bear  the  same  proportion  to  the  total 
income  of  the  country  that  the  higher  expense  did,  the  real  cost  of  the 
currency  would  not  be  at  all  diminished.  The  case  of  France  furnishes 
a  still  more  striking  example  of  the  heavy  charges  attending  the  general 
use  of  a  metallic  currency.  The  amount  of  the  gold  and  silver  currency 
of  that  kingdom  has  been  estimated  by  Necker  at  2,200  millions  of  francs, 
and  by  Peuchet  at  1,850  millions.  (Statistique  EUmentaire  de  la  France, 
p.  473.)  Now,  supposing  the  lowest  estimate  to  be  the  most  correct,  and 
taking  the  rate  of  profit  at  six  per  cent.,  this  currency  must  cost  France  one 
hundred  and  eleven  millions  of  francs  a  year,  exclusive  of  the  wear  and 
tear  and  loss  of  the  coins,  which,  being  taken,  as  before,  at  the  hundredth 
part  of  the  entire  mass,  will  make  the  whole  annual  expense  amount  to  the 
sum  of  a  hundred  and  twenty-two  millions  of  francs,  or  to  nearly  Jive 
millions  sterling.  This  heavy  expense  certainly  forms  a  very  material 
deduction  from  the  advantages  resulting  from  the  use  of  a  currency  con- 
sisting entirely  of  the  precious  metals,  and  has  doubtless  been  the  chief 
cause  why  all  civilized  and  highly  commercial  countries  have  endeavoured 
to  fabricate  a  portion  of  their  money  of  less  valuable  materials.  It  has 
not,  however,  been  the  only  cause.  It  is  obvious  that  were  there  nothing 
but  coins  in  circulation,  the  conveyance  of  large  sums  from  place  to  place 
to  discharge  accounts,  would  be  a  very  laborious  process  ;  and  that  even 
small  sums  could  not  be  conveyed  without  considerable  difficulty.  Of  the 
substitutes,  calculated  alike  to  save  expense  and  to  lessen  the  cost  of  car- 
riage, paper  is  in  every  respect  the  most  eligible,  and  has  been  by  far  the 
most  generally  adopted.  By  using  it  instead  of  gold,  we  substitute  the 
cheapest  in  the  place  of  the  most  expensive  currency  ;  and  enable  socie- 
ty to  exchange  all  the  coins  which  the  use  of  paper  renders  superflu- 
ous, for  raw  materials,  or  manufactured  goods,  by  the  use  of  which  both 
its  wealth  and  enjoyments  are  increased.  It  is  also  transferred  with  the 
utmost  facility.  Hence,  since  the  introduction  of  bills  of  exchange,  most 
great  commercial  transactions  have  been  adjusted  by  means  of  paper  only ; 
and  it  has  also  been  used  to  a  very  great  extent  in  carrying  on  the  ordi- 
nary business  of  society. 


102  Money. 

CHAPTER  V. 

PAPER  MONEY.  —  PRINCIPLE  ON  WHICH  ITS  VALUE  IS  MAINTAINED. 
Origin  of  Paper  Money,  and  Principle  on  which  Banking  is  carried  on, 

IN  the  earliest  periods,  subsequent  to  the  invention  of  writing  and  paper, 
the  pecuniary  engagements  of  individuals  would  be  committed  to  the  lat- 
ter. This  gives  security  to  the  creditor,  that  he  shall  be  able  to  claim  the 
full  amount  of  his  debts,  and  to  the  debtor,  that  he  shall  not  be  liable  to 
any  overcharge  ;  and  avoids  the  differences  which  are  sure  to  arise  where 
the  terms  of  contracts  are  not  distinctly  specified.  But  a  very  short  time 
only  would  elapse  before  individuals,  having  written  obligations  from  oth- 
ers, would  begin  to  transfer  them  to  their  debtors  ;  and  after  the  advantages 
derivable  from  employing  them  in  this  way  had  been  ascertained,  it  was 
an  obvious  source  of  emolument  for  persons  in  whose  wealth  and  discretion 
the  public  had  confidence  to  issue  their  obligations  to  pay  certain  sums, 
in  such  a  form  as  might  fit  them  for  performing  the  functions  of  a  circu- 
lating medium  in  the  ordinary  transactions  of  life.  No  one  would  refuse 
to  accept,  as  money,  the  promissory  note  or  obligation  of  an  individual  of 
large  fortune,  and  of  whose  solvency  no  doubt  could  be  entertained.  But 
as  full  value  must  have  been  originally  given  for  the  promissory  note,  it  is 
clear  that  whilst  its  continuance  in  circulation  could  be  no  loss  to  the  pub- 
lic, it  would  be  a  very  great  source  of  profit  to  the  issuer. 

Suppose,  for  example,  that  a  merchant  issues  a  promissory  note  for 
.£10,000,  he  must,  previously  to  putting  it  in  circulation,  either  have  re- 
ceived an  equivalent  sum  of  money,  or  of  some  sort  of  produce  possessed 
of  real  value,  or,  which  is  by  far  the  most  common  case,  he  must  have 
advanced  it  to  an.  individual  who  has  given  him  security  for  its  repayment 
with  interest.  In  point  of  fact,  therefore,  the  issuer  has  exchanged  his 
promise  to  pay  .£10,000  for  the  profits  to  be  derived  from  the  employment 
of  a  real  capital  of  that  amount ;  and  as  long  as  the  promissory  note,  the 
intrinsic  worth  of  which  cannot  well  exceed  a  sixpence,  remains  in  circu- 
lation, he  will,  supposing  profits  to  be  five  per  cent.,  receive  from  it  a  rev- 
enue of  £500  a  year.  It  is  on  this  principle  that  the  business  of  banking 
is  conducted.  A  banker  could  make  no  profit  were  he  obliged  to  keep 
dead  stock  or  bullion  in  his  coifers,  equal  to  the  amount  of  his  notes  in 
circulation.  But  if  he  be  in  good  credit,  a  fourth  or  fifth  part  of  this  sum 
will  perhaps  be  sufficient ;  and  his  profits,  after  the  expenses  of  the  estab- 
lishment, and  of  the  manufacture  of  his  notes,  are  deducted,  will  be  meas- 
ured by  the  excess  of  the  profit  derived  from  his  notes  in  circulalion,  over 
that  which  he  might  have  realized  by  employing  the  stock  kept  in  his  cof- 
fers to  meet  the  demands  of  the  public.  "  A  bank  would  never  be  estab- 
lished, if  it  obtained  no  other  profits  but  those  derived  from  the  employ- 
ment of  its  own  capital :  its  real  advantage  commences  only  when  it  em- 
ploys the  capital  of  others."  (Proposals  for  an  Economical  and  Secure 
Currency,  p.  87.) 


Money.  103 


Limitation  of  Supply  sufficient  to  sustain  the  Value  of  Bank  Paper. 

As  no  means  have  been  devised  to  limit  the  supply  of  the  promissory 
notes  issued  by  private  individuals,  their  value,  it  is  plain,  could  not  be 
maintained  were  the  issuers  to  fall  into  discredit,  or  relieved  from  their 
promise  to  pay  them.  But  it  is  otherwise  with  the  promissory  notes  issued 
by  the  state,  or  by  a  company  acting  under  its  control.  The  quantity  of 
such  notes  may  be  effectually  limited  ;  and  we  have  seen  that,  when  this 
is  the  case,  intrinsic  worth  is  not  necessary  to  a  currency,  and  that,  by 
properly  regulating  the  supply  of  paper  declared  to  be  legal  tender,  its 
value  may  be  sustained  on  a  par  with  gold,  or  any  other  commodity.  It 
was  by  acting  on  this  principle  of  limitation,  that  the  value  of  the  paper  of 
the  Bank  of  England  was  maintained  in  the  interval  between  the  passing 
of  the  restriction  act  in  1797,  and  the  commencement  of  bullion  payments 
in  1820.  No  rational  explanation  of  this  circumstance,  so  much  at  vari- 
ance with  all  the  old  theories  of  paper  money,  can  be  deduced  from  any 
other  principle.  The  fact  of  their  being  depreciated  never  creates  any 
indisposition  on  the  part  of  the  public  to  apply  for  accommodation  to  a 
bank  whose  notes  are  legal  tender.  The  presenter  of  a  bill  for  discount 
is  indifferent  whether  the  notes  given  in  exchange  for  it  are  payable  in 
specie  or  not.  His  object,  in  resorting  to  the  bank,  is  to  exchange  his 
promissory  note  for  money ;  that  is,  for  paper  that  will  be  received  in  pay- 
ment of  his  debts,  or  of  whatever  he  may  wish  to  purchase.  It  is,  there- 
fore, of  no  consequence  to  him,  whether  the  issuers  of  paper  have,  by 
issuing  an  excess,  depressed  its  value  relatively  to  gold,  or  whether  they 
have  so  restricted  their  issues  as  to  sustain  its  value  on  a  level  with  the 
value  of  that  metal.  These  circumstances,  it  is  true,  affect  the  interests 
of  all  those  classes  whose  incomes  do  not  vary  with  the  variations  in  the 
value  of  money ;  but,  inasmuch  as  the  prices  of  goods  rise  and  fall  with 
the  increase  or  diminution  of  paper,  merchants,  who  are  the  principal  de- 
manders  of  discounts,  are  comparatively  but  little  affected  by  its  fluctua- 
tions. The  presenter  of  a  bill  for  £  500  or  £  1,000  to  a  bank,  has  received 
it,  if  it  have  arisen  out  of  a  real  commercial  transaction,  in  lieu  of  a  cer- 
tain quantity  of  goods,  which,  at  the  then  value  of  money,  were  worth 
£  500  or  £  1,000 ;  and  it  is  this  sum  which,  by  presenting  the  bill  to  the 
bank,  he  wishes  to  obtain.  If  the  value  of  money  had  been  different,  the 
price  of  the  goods,  and  consequently  the  sum  for  which  the  bill  was  drawn, 
would  also  have  been  different.  It  is  to  this  market  value  of  money  at  the 
time  that  attention  is  exclusively  paid  in  commercial  transactions.  When, 
in  1809,  1810,  1811,  1812,  1813,  and  18 14,  Bank  of  England  paper  was 
depressed  from  excess,  from  ten  to  twenty-five  per  cent,  below  the  value 
of  bullion,  the  circumstance  of  an  act  of  Parliament  having  declared,  that 
it  should  be  paid  in  cash  at  the  restoration  of  peace,  had  as  little  effect  in 
raising  its  value,  as  its  depreciation  had  in  diminishing  the  applicants  for 
discounts.  The  truth  is,  that  individuals  never  resort  to  a  bank  for  paper 
money,  unless  they  have  immediate  occasion  for  it.  As  soon  as  it  has 
been  obtained,  they  throw  it  upon  the  market,  for  whatever  it  will  bring  ; 
and  as  they  purchased  it  on  the  same  terms  (for  it  is  seldom  that  the  val- 


104  Money. 

ue  of  money  is  materially  affected  in  the  short  interval  between  the  time 
when  a  bill  is  discounted  and  becomes  due),  they  generally  get  as  much 
for  it,  and  perhaps  more,  than  it  cost.  We  shall  immediately  explain 
what  constitutes  the  natural  limit  to  the  applications  for  discounts  ;  but  we 
have  said  enough  to  show  that  it  has  nothing  to  do  with  the  convertibility 
of  notes  into  cash. 

Those  who  have  recourse  to  a  bank  to  obtain  discounts  of  accommoda- 
tion bills,  consider,  like  the  presenters  of  real  bills,  only  the  present 
value  of  money.  Accommodation  bills  are  never  discounted,  excepting 
in  the  view  of  immediately  employing  the  money,  either  in  the  purchase 
of  commodities,  or  of  labor,  or  in  the  payment  of  debts ;  and,  whether 
one  pound  notes  be  of  the  value  of  10s.  or  20s.  is  obviously  of  no  conse- 
quence ;  inasmuch  as  the  amount  of  the  bill  presented  for  discount  is  reg- 
ulated accordingly. 

The  circumstance  that  country  bank  notes  cease  to  circulate  as  soon  as 
any  suspicion  is  entertained  of  the  solvency  of  their  issuers,  is  nowise  in- 
consistent with  this  principle.  Country  bank  notes  are  exchangeable,  at 
the  pleasure  of  the  holder,  for  Bank  of  England  notes  ;  but  from  the  re- 
striction in  1797  down  to  1820,  the  latter  not  being  exchangeable  for  any 
thing  else,  constituted  the  real  standard  of  value.  Hence,  when  a  coun- 
try bank  lost  credit,  the  circulation  of  its  notes  was  stopped,  from  its  being 
believed  that  it  would  be  impossible  to  obtain  Bank  of  England  paper  in 
their  stead  ;  or,  in  other  words,  that  they  would  not  exchange  for  that 
description  of  paper  which  constituted  the  real  medium  of  exchange.  But 
it  is  impossible  to  imagine,  that  this  paper  should  itself  be  affected  by  a 
want  of  credit.  Every  one  knew  that  it  had  no  intrinsic  worth  ;  and  as 
already  shown,  its  value  was  regulated  (and  must,  whenever  it  is  not  ren- 
dered exchangeable  for  a  given  quantity  of  some  other  commodity,  con- 
tinue to  be  exclusively  regulated)  by  the  amount  in  circulation  compared 
with  the  demand. 

It  appears,  therefore,  that  if  there  were  perfect  security  that  the  power 
of  issuing  paper  money  would  not  be  abused ;  that  is,  if  there  were  per- 
fect security  for  its  being  issued  in  such  quantities,  as  to  preserve  its  value 
relatively  to  the  mass  of  circulating  commodities  nearly  equal,  the  precious 
metals  might  be  entirely  dispensed  with,  not  only  as  a  circulating  medium, 
but  also  as  a  standard  to  which  to  refer  the  value  of  paper. 

Difficulty  of  limiting  the  Supply  of  Bank  Paper,  otherwise  than  by  rendering  it 
exchangeable  for  Gold  or  Silver. 

Unfortunately,  however,  no  such  security  can  be  given.  This  is  a  point, 
respecting  which  there  can  be  no  difference  of  opinion.  We  have  it  in 
our  power  to  appeal  to  a  widely  extended  and  uniform  course  of  experi- 
ence ;  to  the  history  of  Great  Britain,  and  of  every  other  country  in  .Eu- 
rope, and  to  that  of  the  United  States ;  to  show  that  no  man,  or  set  of 
men,  have  ever  been  invested  with  the  power  of  making  unrestricted  issues 
of  paper  money  without  abusing  it ;  or,  which  is  the  same  thing,  without 
issuing  it  in  inordinate  quantities.  If  the  power  to  supply  the  state  with 
paper  money  be  vested  in  a  private  banking  company,  then  to  suppose 


Money,  105 

that  they  should,  by  limiting  their  issues,  endeavour  constantly  to  sustain 
the  value  of  paper,  would  be  to  suppose  that  they  should  be  attentive  only 
to  the  public  interest,  and  neglect  their  own  private  interest.  The  re- 
enactment  of  the  restriction  act,  would  not  have  the  least  effect  on  the  val- 
ue of  paper,  provided  its  quantity  were  not  at  the  same  time  increased. 
But  who  can  doubt  that,  in  such  circumstances,  it  would  be  increased  ? 
Such  a  message  would  enable  the  Bank  of  England  to  exchange  bits  of 
engraved  paper,  not  worth,  perhaps,  five  shillings  a  quire,  for  as  many, 
or  the  value  of  as  many  hundreds  of  thousands  of  pounds.  And  is  it  to 
be  supposed,  that  the  directors  and  proprietors  of  the  Bank  should  not  avail 
themselves  of  such  an  opportunity  to  amass  wealth  and  riches  ?  If  gov- 
ernment enable  a  private  gentleman  to  exchange  a  bit  of  paper  for  an  es- 
tate, will  he  be  deterred  from  doing  so  by  any  considerations  about  its 
effect  in  sinking  the  value  of  the  currency  ?  In  Loo  Choo  we  might  per- 
haps meet  with  such  an  individual,  but  if  we  expect  to  find  him  in  Europe, 
we  shall  most  likely  be  disappointed.  Here  we  are  much  too  eager  in  the 
pursuit  of  fortune  to  be  at  all  influenced  by  such  scruples.  It  is  essential, 
therefore,  that  the  issuers  of  paper  money  should  be  placed  under  some 
check  or  control ;  and  the  comparatively  steady  value  of  the  precious  met- 
als, at  once  suggests  that  none  can  be  so  effectual  as  to  lay  them  under 
the  obligation  of  exchanging  their  notes,  at  the  pleasure  of  the  holder,  for 
a  given  and  unvarying  quantity  of  gold  or  silver. 

Proposition  maintained  by  those  who  deny  that  Bank  Paper  can  be  depreciated.  — 
Demand  for  Discounts  depends  on  a  Comparison  between  the  Rate  of  Interest  and 
the  Rate  of  Profit. 

It  has,  however,  been  contended,  that  there  is  a  material  difference  be- 
tween paper  issued  by  government  in  payment  of  its  debts,  and  that  issued 
by  a  private  banking  company  in  discount  of  good  bills.  In  regard  to  the 
former,  it  is  admitted  on  all  hands  that  it  may  be  issued  in  excess ;  but  in 
regard  to  the  latter,  it  has  been  strenuously  urged,  that  "  notes  issued  only 
in  proportion  to  the  demand,  in  exchange  for  good  and  convertible  securi- 
ties, payable  at  specific  periods,  cannot  occasion  any  excess  in  the  circu- 
lation, or  any  depreciation."  As  all  the  arguments  advanced  by  those 
who  contended  that  the  paper  of  Great  Britain  was  not  depreciated  be- 
tween 1797  and  1819,  involve  this  principle,  it  may  be  worth  while  to  ex- 
amine it  a  little  minutely. 

In  the  first  place,  it  may  be  observed,  that  the  demand  for  discounts 
does  not  depend  on  the  nature  of  the  security  required  for  their  repayment, 
but  on  the  rate  of  interest  for  which  they  may  be  obtained,  compared  with 
the  ordinary  rate  of  profit  made  by  their  employment.  If  an  individual 
can  borrow  £  10,000,  £  100,000,  or  any  greater  sum,  at  4,  5,  or  6  per 
cent.,  and  if  he  can  realize  7,  8,  or  10  per  cent,  by  its  employment,  it  is 
evidently  for  his  interest,  and  it  would  be  for  the  interest  of  every 
other  person  similarly  situated,  to  borrow  to  an  unlimited  extent.  But  a 
banking  company,  relieved  of  all  obligation  to  pay  its  notes  in  cash,  and 
not,  of  course,  obliged  to  keep  any  unproductive  stock  or  bullion  in  its 
coffers,  would  be  able  to  issue  its  notes  at  the  lowest  possible  rate  of  inter- 


106  Money. 

est;  and  the  demand  for  its  paper  would  therefore  be  proportionally 
great. 

"  The  interest  of  money,"  says  Mr.  Kicardo,  "  is  not  regulated  by  the 
rate  at  which  the  bank  will  lend,  whether  it  be  5, 4,  or  3  per  cent.,  but  by 
the  rate  of  profit  which  can  be  made  by  the  employment  of  capital,  and 
which  is  totally  independent  of  the  quantity  or  of  the  value  of  money. 
Whether  the  bauk  lent  one  million,  ten  millions,  or  a  hundred  millions, 
they  would  not  permanently  alter  the  market  rate  of  interest ;  they  would 
alter  only  the  value  of  the  money  which  they  thus  issued.  In  one  case, 
ten  or  twenty  times  more  money  might  be  required  to  carry  on  the  same 
business  than  what  might  be  required  in  the  other.  The  applications  to 
the  bank  for  money,  then,  depend  on  the  comparison  between  the  rate  of 
profit  that  may  be  made  by  the  employment  of  it,  and  the  rate  at  which 
they  are  willing  to  lend  it.  If  they  charge  less  than  the  market  rate  of 
interest,  there  is  no  amount  of  money  which  they  might  not  lend  ;  if  they 
charge  more  than  that  rate,  none  but  prodigals  and  spendthrifts  would  be 
found  to  borrow  of  them.  We  accordingly  find  that  when  the  market  rate 
of  interest  exceeds  the  rate  of  five  per  cent.,  at  which  the  bank  uniformly 
lends,  the  discount  office  is  besieged  with  applicants  for  money  ;  and,  on 
the  contrary,  when  the  market  rate  is  even  temporarily  under  five  per 
cent.,  the  clerks  of  that  office  have  no  employment."  (Principles  of  Po- 
litical Economy,  p.  511.) 

From  1809  to  1815  inclusive,  the  period  in  which  the  value  of  our  pa- 
per currency  relatively  to  gold  was  lowest,  the  market  rate  of  interest  con- 
siderably exceeded  the  rate  (five  per  cent.)  at  which  the  Bank  of  England 
and  most  of  the  country  banks  invariably  lent.  Although,  therefore,  the 
amount  of  paper  currency  had,  in  that  interval,  been  very  much  increased, 
the  applicants  for  fresh  discounts  continued  as  numerous  as  ever.  And 
there  seems  no  reason  to  doubt,  had  the  directors  not  been  apprehensive 
that,  ultimately,  they  might  have  to  pay  their  notes  in  specie,  that  the 
amount  in  circulation  would  have  been  very  much  increased ;  at  least, 
such  would  certainly  have  been  the  case,  had  they  acted  to  the  full  extent 
of  their  avowed  opinion,  that  it  was  impossible  to  issue  too  much  paper,  or 
to  reduce  its  value,  by  engrossing  into  the  circulation  such  quantities  as 
were  issued  in  discount  of  good  bills.  The  wants  of  commerce  are  alto- 
gether insatiable.  Inconvertible  paper  money,  provided  the  rate  of  inter- 
est at  which  bills  are  discounted  be  less  than  the  market  rate,  can  never 
be  too  abundant.  As  long  as  this  is  the  case,  million  after  million  may  be 
thrown  upon  the  market.  The  value  of  the  currency  may  be  so  reduced 
as  to  require  a  one  pound  note  to  purchase  a  quartern  loaf ;  but  the  cir- 
cumstance of  its  value  being  diminished  in  proportion  to  the  increase  of 
its  quantity,  would  render  the  demand  for  additional  supplies  as  great  as 
ever. 

Were  the  Bank  of  England  to  discover  a  process  whereby  sovereigns 
could  be  manufactured  with  the  same  facility  as  notes,  it  could  not  be  dis- 
puted that  it  would  be  in  her  power  to  depreciate  the  value  of  gold,  by 
making  large  issues  of  what  had  been  produced  at  so  very  little  cost.  Now, 
in  what  respect  would  this  fictitious  case  differ  from  the  actual  situation  of 
the  Bank,  were  the  restriction  act  renewed  and  made  perpetual  ?  The 


Money.  107 

Bank  would  then  be  able,  without  check  or  control,  to  exchange  her  paper 
for  landed  property,  manufactured  goods,  government  securities,  &c.  But 
we  have  seen,  that  the  value  of  this  paper,  like  the  value  of  gold,  in  the 
hypothetical  case,  depends  entirely  on  the  proportion  which  the  supply 
bears  to  the  demand ;  and,  as  the  demand  is  not  affected  by  an  increase  of 
quantity,  for  that  increase,  by  diminishing  its  value,  renders  the  larger 
quantity  of  as  little  efficacy  as  the  smaller  quantity,  it  is  abundantly  clear, 
that  if  the  Bank  lent  at  a  sufficiently  low  rate  of  interest,  there  could  be  no 
limit  to  their  issues. 

Necessity  of  making  Bank  Notes  payable  in  Gold  or  Silver. 

On  the  whole,  therefore,  it  is  plain,  whether  the  power  of  issuing  paper 
be  vested  in  the  hands  of  a  private  banking  company,  or  of  govern- 
ment, that  it  must  be  placed  under  some  efficient  control,  such  as  the  obli- 
gation to  pay  in  gold  or  silver.  It  is  easy  to  discover  the  manner  in  which 
a  check  of  this  kind  limits  the  issue  of  paper,  and  sustains  its  value. 
Whenever  the  Bank  has  issued  so  much  paper  as  to  sink  its  value  rela- 
tively to  bullion,  its  notes  begin  to  return  upon  it,  to  have  them  exchanged 
for  a  higher  value  ;  and  the  Bank  is,  in  consequence,  obliged,  to  prevent 
the  exhaustion  of  its  coffers,  to  contract  its  issues,  and  raise  its  paper  to  a 
level  with  gold.  An  extremely  small  profit,  or  an  extremely  small  depre- 
ciation of  paper,  as  compared  with  gold  or  silver,  is  sufficient  to  make  the 
holders  of  bank  paper  send  it  to  be  exchanged  for  those  metals ;  and  hence 
the  value  of  bank  notes  convertible  at  pleasure  into  a  given  and  unvarying 
quantity  of  gold  or  silver  can  never  differ  considerably  from  its  value. 
The  issues  of  the  Bank  of  England  were,  for  more  than  a  century  previ- 
ously to  1797,  limited  in  the  manner  now  explained,  and  during  that  whole 
period  they  were  hardly  ever  depreciated  £  per  cent,  and  never  more  than 
two  per  cent.,  and  that  but  for  a  few  days  only. 

Scheme  for  paying  Notes  in  Gold  Bars. 

But  though  it  be  thus  necessary,  in  order  to  avoid  all  sudden  and  inju- 
rious fluctuations  in  the  value  of  paper,  that  it  should  be  made  exchangea- 
ble at  the  pleasure  of  the  holder  for  gold  or  silver,  it  is  not  essential 
to  this  end  that  it  should  be  made  exchangeable  for  gold  or  silver  coins. 
Previously  to  the  resumption  of  specie  payments  -by  the  Bank  of  England 
in  1821,  she  was  obliged  to  give  bars  of  assayed  bullion  in  exchange  for 
her  notes,  according  to  a  plan  suggested  by  the  late  Mr.  Eicardo ;  and 
there  can  be  no  doubt  that  this  obligation  would  have  sustained  the  value 
of  paper  quite  as  effectually  as  it  is  sustained  by  the  obligation  to  pay  in 
coin  of  the  legal  weight  and  purity,  at  the  same  time  that  it  would  have 
saved  the  greater  part  of  the  heavy  expense  occasioned  by  the  use  of  me- 
tallic money.  But,  how  important  soever,  these  were  not  the  only  consid- 
erations that  had  to  be  attended  to.  The  discovery  of  means  for  the  pre- 
vention, or  at  least  diminution,  of  the  forgeries  to  which  the  substitution  of 
notes  in  the  place  of  guineas  had  given  rise,  was  indispensably  necessary 
to  the  maintenance  of  Mr.  Ricardo's  plan ;  and  notwithstanding  all  the 


108  Money.    . 

efforts  that  have  been  made,  this  desideratum  has  not  yet  been  supplied. 
Forgery  in  the  larger  description  of  notes,  or  in  those  for  £  5  and  upwards, 
may  with  due  precaution  be  prevented  from  becoming  injuriously  preva- 
lent. But  low  notes,  or  those  of  the  value  of  £  1  or  <£  2,  having  to  circu- 
late amongst  the  laboring  classes,  and  in  immense  numbers,  present  facili- 
ties for  the  issue  of  spurious  paper,  which  it  has  been  found  impossible 
materially  to  diminish.  Hence,  in  1821,  the  plan  of  paying  in  bars  of 
bullion  was  abandoned,  and  the  Bank  of  England  recommended  paying  in 
specie.  (It  was  intended  to  have  been  given  in  this  place  some  account 
of  the  Bank  of  England,  and  of  the  provincial  Banks  ;  but  as  inquiries  are 
at  present,  February  1837,  in  progress,  which  may  throw  considerable 
light  on  these  establishments,  and  measures  are  believed  to  be  in  contem- 
plation  by  which  they  may  be  materially  affected,  it  has  been  judged  bet- 
ter to  postpone  all  notice  of  them  to  the  article  upon  PAPER  MONEY.) 


CHAPTER  VI. 

WHETHER  GOLD  OR  SILVER  SHOULD  BE  ADOPTED  AS  THE  STANDARD  OF  THE 
CURRENCY,  OR  WHETHER  IT  SHOULD  CONSIST  OF  BOTH. 

Impossibility  of  arbitrarily  fixing  the  relative  Value  of  Gold  and  Silver.  —  Over- 
valuation of  Gold  at  the  Mint  the  Cause  of  its  being  used  in  all  considerable  Pay- 
ments in  this  Country. 

As  the  value  of  gold  and  silver,  or  the  cost  of  their  production,  is  perpet- 
ually varying,  not  only  relatively  to  other  commodities,  but  also  relatively 
to  each  other,  it  is  impossible  arbitrarily  to  fix  their  comparative  value. 
Gold  may  now,  or  at  any  given  period,  be  to  silver  as  14  or  15  is  to  1  ; 
but  were  sovereigns  and  shillings  coined  in  that  proportion,  the  discovery 
of  a  gold  or  silver  mine  of  more  than  the  ordinary  degree  of  productive- 
ness, or  the  discovery  of  any  abridged  process,  by  which  labor  might  be 
saved  in  the  production  of  one  of  the  metals,  would  derange  this  propor- 
tion. As  soon,  however,  as  the  mint  proportion  between  the  different 
metals  ceases  to  be  the  same  with  that  which  they  bear  to  each  other  in 
the  market,  then  it  becomes  the  obvious  interest  qf  every  debtor  to  pay  his 
debts  in  the  metal  whose  mint  valuation  is  highest. 

In  1718,  in  pursuance  of  the  advice  of  Sir  Isaac  Newton,  the  value  of 
the  guinea  was  reduced  from  twenty-one  shillings  and  sixpence  to  twenty- 
one  shillings ;  the  value  of  fine  gold  to  fine  silver  was  consequently  rat- 
ed, in  our  mint,  at  15-^8^-  to  1,  and  both  metals  were  declared  to  be  legal 
tender  in  that  proportion.  But,  notwithstanding  this  reduction,  the  guinea 
was  still  rated  at  a  higher  value,  compared  with  silver,  than  it  ought  to 
have  been.  This  higher  value  was  estimated,  by  Lord  Liverpool,  to  have 
been,  at  the  time,  equal  to  fourpence  on  the  guinea,  or  to  l£f  per  cent. ; 


Money.  109 

and  as  the  value  of  silver  compared  with  gold,  continued  to  increase  dur- 
ing the  greater  part  of  last  century,  it  afterwards  became  considerably 
greater.  The  over-valuation  of  gold,  by  making  it  for  the  interest  of  ev- 
ery one  to  pay  his  debts  in  it  rather  than  in  silver,  made  gold  be  used  in  all 
considerable  payments,  and  was  the  cause  that,  during  the  long  period  from 
1718  down  to  the  late  recoinage,  no  silver  coins  of  the  legal  weight  and 
fineness  would  remain  in  circulation.  The  silver  currency  consisted  en- 
tirely of  light,  worn  coins ;  and  when,  in  1797,  the  further  coinage  of 
silver  was  forbidden,  the  silver  currency  was  Very  much  debased.  But, 
as  it  existed  only  in  a  limited  quantity,  it  did  not,  according  to  the  princi- 
ple already  explained,  sink  in  its  current  value.  Though  debased,  it  was 
still  the  interest  of  debtors  to  pay  in  gold.  If,  indeed,  the  quantity  of  de- 
based silver  had  been  very  great,  or  if  the  mint  had  issued  such  debased 
pieces,  it  might  have  been  the  interest  of  debtors  to  pay  in  such  debased 
money.  But  its  quantify  being  limited,  it  sustained  its  value  ;  and  gold 
was  practically  the  real  standard  of  the  currency. 

The  act  of  1774,  declaring  that  silver  should  not  be  legal  tender  for  any 
debt  exceeding  £  25,  unless  by  weight  according  to  the  mint  standard, 
had  not,  as  has  been  supposed,  any  effect  in  causing  the  general  employ- 
ment of  gold  as  money,  in  preference  to  silver.  For,  to  use  the  words  of 
Mr.  Ricardo,  "  this  law  did  not  prevent  any  debtor  from  paying  any  debt, 
however  large  its  amount,  in  silver  currency  fresh  from  the  mint.  That 
the  debtor  did  not  pay  in  this  metal  was  not  a  matter  of  chance,  nor  a  mat- 
ter of  compulsion,  but  wholly  the  effect  of  choice.  It  did  not  suit  him  to 
take  silver  to  the  mint,  but  it  did  suit  him  to  take  gold  thither.  It  is  proba- 
ble that  if  the  quantity  of  this  debased  silver  in  circulation  had  been  enor- 
mously great,  and  also  a  legal  tender,  that  a  guinea  would  have  been,  as 
in  the  reign  of  William  III.,  worth  thirty  shillings  ;  but  it  would  have  been 
the  debased  shilling  that  had  fallen  in  value,  and  not  the  guinea  that  had 
risen."  (Principles  of  Political  Economy,  p.  520.) 

Contrary  Effect  produced  by  the  Overvaluation  of  Silver  in  the  French  Mint. 

In  France  a  different  valuation  of  the  precious  metals  had  a  different 
effect.  The  louis  d'or,  which,  previously  to  the  recoinage  of  1785,  was 
rated  in  the  mint  valuation  at  24  livres,  was  really  worth  25  livres,  10  sols. 
Those,  therefore,  who  chose  to  discharge  the  obligations  they  had  con- 
tracted, by  payments  of  gold  rather  than  of  silver,  plainly  lost  1  livre,  10 
sols  on  every  sum  of  24  livres.  In  consequence  very  few  such  payments 
were  made,  gold  was  nearly  banished  from  circulation,  and  the  currency 
of  France  became  almost  exclusively  silver.  (Say,  torn.  i.  p.  393.)  In 
1785,  a  sixteenth  part  was  deducted  from  the  weight  of  the  louis  d'or, 
and  since  that  period  the  value  of  the  precious  metals,  as  fixed  in 
the  French  mint,  has  more  nearly  corresponded  with  the  proportion 
which  they  bear  to  each  other  in  the  market.  Indeed,  it  was  stated, 
in  evidence  before  the  Committee  of  the  House  of  Commons  in  1819 
(Report,  p.  192),  that  the  difference  between  the  mint  and  market  pro- 
portions of  gold  and  silver  at  Paris  in  1817  and  1818,  had  not  exceeded 
from  one  tenth  to  one  fourth  per  cent.  There  is,  however,  no  reason  to 


110  Money. 

presume  that  this  coincidence,  which  must  have  been  in  a  great  degree 
accidental,  can  be  maintained  under  any  arbitraiy  system.  To  insure  the 
indifferent  use  of  gold  and  silver  coins  in  countries  where  they  are  both  legal 
tender,  their  mint  values  would  require  to  be  every  now  and  then  adjusted, 
so  as  to  correspond  with  their  real  values.  But  as  this  would  obviously  be 
productive  of  much  trouble  and  inconvenience,  the  preferable  plan  un- 
doubtedly is  to  make  only  one  metal  legal  tender,  and  to  allow  the  worth 
of  the  other  to  be  adjusted  by  the  competition  of  the  sellers  and  buyers. 

The  absurdity  of  employ  ing  two  metals  as  legal  tender,  or  as  a  standard 
of  value,  was  unanswerably  demonstrated  by  Mr.  Locke  and  Mr.  Harris, 
and  has  been  noticed  by  every  subsequent  writer ;  but  so  slow  is  the  prog- 
ress of  improvement,  that  it  was  not  till  the  year  1816  that  it  was  enacted 
that  gold  only  should  be  legal  tender  for  all  sums  exceeding  40s. 

Silver  preferable  to  Gold  as  a  Standard.  —  A  Gold  and  Silver  Currency  equally 

valuable. 

Whether,  however,  gold  should  have  been  adopted  as  the  standard  of 
exchangeable  value,  in  preference  to  silver,  is  a  question  not  of  so  easy 
solution,  and  on  which  there  is  a  great  diversity  of  opinion.  Mr.  Locke, 
Mr.  Harris,  and  Mr.  Ricardo,  are  of  opinion  that  silver  is  better  fitted  than 
gold  for  a  standard  ;  whilst  Dr.  Smith,  although  he  has  not  explicitly  ex- 
pressed himself,  appears  to  think  that  gold  ought  to  be  adopted  in  prefer- 
ence. This  opinion  has  been  very  ably  supported  by  Lord  Liverpool,  in 
his  valuable  work  On  the  Coins  of  the  Realm ;  and  his  reasonings  having 
received  the  approbation  of  Parliament,  and  gold  having  been  made  legal 
tender,  all  attempts  to  alter  this  arrangement  ought  to  be  opposed. 

Whether  gold  or  silver  be  adopted  as  the  standard  of  the  currency,  does 
not  affect  its  total  cost  or  value  ;  for,  the  quantity  of  metal  employed  as 
money,  or  the  quantity  of  metal  for  which  paper  is  the  substitute,  is  always 
inversely  as  the  value  or  cost  of  such  metal.  When  gold  is  the  standard, 
fourteen  or  fifteen  times  less  of  it  than  of  silver  is  required  ;  or,  which  is 
the  same  thing,  if  the  denomination  of  a  pound  be  given  to  any  specific 
weight  of  gold  or  silver,  fifteen  times  more  of  such  silver  pounds  will  be 
required  to  serve  as  currency,  fifteen  to  one  being  about  the  proportion 
which  gold  bears  in  value  to  silver.  Hence  the  expense  of  a  gold  or  sil- 
ver currency  is  identical.  Gold  being  too  valuable  in  proportion  to  its 
bulk,  to  be  coined  into  pieces  of  the  value  of  a  shilling  or  a  sixpence,  the 
subsidiary  currency  necessary  in  small  payments,  should  be  overvalued, 
and  issued  only  in  limited  quantities,  as  is  the  case  with  the  present  silver 
coinage. 

Were  a  seignorage  charged  on  the  gold  coins,  paper,  it  is  obvious, 
might  be  depreciated  to  the  full  extent  of  that  seignorage,  before  it  would 
be  the  interest  of  the  holders  to  demand  coin  for  the  purpose  of  exporta- 
tion, and  consequently  before  the  check  of  specie  payments  could  begin 
to  operate.  But,  even  with  such  a  seignorage,  the  risk  of  paper  being  de- 
preciated, might  be  obviated,  by  making  it  obligatory  on  the  Bank  to  pay 
their  notes,  either  in  bullion,  at  the  mint  price  of  <£  3  17s.  10±d.  an  ounce, 
or  coin,  at  the  pleasure  of  the  holder.  A.  regulation  of  this  kind  could 


Money.  Ill 

not  be  justly  considered  as  imposing  any  hardship  on  the  Bank ;  for  it 
is  plain,  that  no  bullion  would  be  demanded  from  her,  except  when, 
by  the  issue  of  too  much  paper,  its  value  had  been  sunk  below  the  stand- 
ard. 


CHAPTER  VII. 

STANDARD  OF  MONEY. DEGRADATION  OP  THE  STANDARD  IN  ITALY,  FRANCE, 

GREAT  BRITAIN,  AND  OTHER  COUNTRIES. PERNICIOUS  EFFECTS  OF  THIS 

DEGRADATION. 

Standard  of  Money. — Purity  of  English  Coins. 

BY  the  standard  of  money  is  meant  the  degree  of  the  purity  or  fineness 
of  the  metal  of  which  coins  are  made,  and  the  quantity  or  weight  of  such 
metal  contained  in  these  coins.  Twelve  ounces  of  the  metal,  of  which 
standard  English  silver  coins  are  made,  contains  11  ounces  2dwts.  fine, 
and  18dwts.  alloy  ;  and  a  pound  troy  of  this  standard  silver,  or  pound 
sterling,  contains  66  shillings,  or  fg  parts  of  ^  of  a  pound  troy  of  fine 
silver,  that  is,  1614  f  £  grains.  (The  carat  is  a  bean,  the  fruit  of  an  Abys- 
sinian tree,  called  Kuara.  This  bean,  from  the  time  of  its  being  gathered, 
varies  very  little  in  its  weight,  and  seems  to  have  been,  in  the  earliest  ages, 
a  weight  for  gold  in  Africa.  In  India  it  is  used  as  a  weight  for  diamonds, 
&c.  Bruce's  Travels,  vol.  v.  p.  66.)  From  the  43  pf  Elizabeth  down 
to  1816,  when  the  act  56th  George  III.  cap.  68,  imposing  a  seignorage  of 
about  six  per  cent,  on  the  silver  coin,  was  passed,  the  pound  weight  of 
standard  silver  bullion  was  coined  into  62  shillings.  All  the  English  silver 
coins  have  been  coined  out  of  silver  of  1  loz.  2dwts.  fine,  from  the  Con- 
quest to  this  moment,  excepting  for  a  period  of  sixteen  years,  from  34th 
Henry  VIII.  to  the  2d  Elizabeth. 

The  purity  of  gold  is  not  estimated  either  in  Great  Britain,  or  in  most 
other  European  countries,  by  the  weights  commonly  in  use,  but  by  the 
Abyssinian  weight,  called  a  carat.  The  carats  are  subdivided  into  four 
parts,  called  grains,  and  these  again  into  quarters ;  so  that  a  carat  grain, 
with  respect  to  the  common  divisions  of  a  pound  troy,  is  equivalent  to  2£ 
pennyweights.  Gold  of  the  highest  degree  of  fineness,  or  pure,  is  said 
to  be  24  carats  fine.  When  gold  coins  were  first  made  at  the  English 
mint,  the  standard  of  the  gold  put  in  them  was  of  23  carats  3£  grains  fine, 
and  $  grain  of  alloy  ;  and  so  it  continued  without  any  variation  to  the  18th 
Henry  VIII.,  when  a  new  standard  of  gold  of  22  carats  fine,  and  2  car- 
ats alloy  was  introduced.  The  first  of  these  was  called  the  old  standard  ; 
the  second  the  new  standard,  or  crown  gold,  because  crowns,  or  pieces  of 
the  value  of  five  shillings,  were  first  coined  of  this  new  standard.  Henry 
VIII.  made  his  gold  coins  of  both  these  standards  under  different  denomi- 


112  Money. 

nations  ;  and  this  practice  was  continued  by  his  successors  until  the  year 
1633.  From  that  period  to  the  present,  gold  coins  have  been  invariably 
made  of  the  new  standard,  or  crown  gold ;  although  some  of  the  coins 
made  of  the  old  standard  previously  to  1633  continued  to  circulate  till 
1732,  when  they  were  forbidden  to  be  any  longer  current.  (Liverpool,  On 
Coins,  p.  27.) 

Weight  of  English  Coins. 

The  standard  of  our  present  gold  coins  is,  therefore,  eleven  parts  of  fine 
gold,  and  one  part  of  alloy.  The  pound  Troy  of  such  gold  is  divided  into 
46T8^V  sovereigns,  each  of  which  ought,  consequently,  when  fresh  from 

the  mint,  to  weigh  —        of  twelve  ounces,  or  five  dwts.  3£££  grains  of 


standard  gold,  or  four  dwts.  UTT/I?  grains  of  pure  gold. 

The  alloy  in  coins  is  reckoned  of  no  value.  It  is  allowed,  in  order  to 
save  the  trouble  and  expense  that  would  be  incurred  in  refining  the  met- 
als, so  as  to  bring  them  to  the  highest  degree  of  purity ;  and  because, 
when  its  quantity  is  small,  it  has  a  tendency  to  render  the  coins  harder, 
and  less  liable  to  be  worn  or  rubbed.  If  the  quantity  of  alloy  were  con- 
siderable, it  would  lessen  the  splendor  and  the  ductility  of  the  metals,  and 
would  add  too  much  to  the  weight  of  the  coins. 

Having  thus  ascertained  what  the  standard  of  money  really  is,  we  shall 
now  proceed  to  examine  the  effects  produced  by  variations  in  the  stand- 
ard. This  is,  both  in  a  practical  and  historical  point  of  view,  a  very  im- 
portant inquiry. 

Variations  of  the  Standard.  —  General  Remarks. 

To  make  any  direct  alteration  in  the  terms  of  the  contracts  entered  into 
between  individuals,  would  be  too  barefaced  and  tyranical  an  interference 
with  the  rights  of  property  to  be  tolerated.  Those,  therefore,  who  en- 
deavour to  enrich  one  part  of  society,  at  the  expense  of  another,  find  it 
necessary  to  act  with  great  caution  and  reserve,  and  to  substitute  artifice 
for  open  and  avowed  injustice.  Instead  of  directly  altering  the  stipula- 
tions in  contracts,  they  have  ingeniously  bethought  themselves  of  altering 
the  standard  by  which  these  stipulations  were  adjusted.  They  have  not 
said,  in  so  many  words,  that  ten  or  twenty  per  cent,  should  be  added  to 
or  deducted  from  the  mutual  debts  and  obligations  of  society,  but  they 
have,  nevertheless,  effected  this  by  making  a  proportional  change  in  the 
value  of  the  currency.  Men,  in  their  bargains  do  not,  as  has  been  already 
seen,  stipulate  for  signs  or  measures  of  value,  but  for  real  equivalents. 
Money  is  not  merely  the  standard  by  a  comparison  with  which  the  value 
of  commodities  is  ascertained  ;  but  it  is  also  the  equivalent,  by  the  delivery 
of  a  fixed  amount  of  which  the  stipulations  in  most  contracts  and  engage- 
ments may  be  discharged.  It  is  plain,  therefore,  that  no  variation  can 
take  place  in  its  value,  without  effecting  all  these  stipulations.  Every  ad- 
dition to  the  value  of  money  makes  a  corresponding  addition  to  the  debts 


Money. 


113 


of  the  state,  and  of  every  individual  ;  and  every  diminution  of  its  value 
makes  a  corresponding  diminution  of  those  debts.  Suppose  that,  owing  to 
an  increase  in  the  difficulty  of  producing  gold  and  silver,  or  in  the  quan- 
tity of  bullion  contained  in  coins  of  the  same  denomination,  the  value  of 
money  is  raised  twenty  per  cent.,  it  is  plain  that  this  will  add  twenty  per 
cent,  to  the  various  sums  which  one  part  of  society  owes  to  another. 
Though  the  nominal  rent  of  the  farmer,  for  example,  continue  stationary, 
his  real  rent  is  increased.  He  continues  to  pay  the  same  number  of 
pounds  or  livres  as  formerly ;  but  these  have  become  more  valuable,  and 
require  to  obtain  them  the  sacrifice  of  a  fifth  part  more  corn,  labor,  or  other 
things,  the  value  of  which  has  remained  stationary.  On  the  other  hand, 
had  the  value  of  money  fallen  twenty  per  cent.,  the  advantage,  it  is  plain, 
would  have  been  all  on  the  side  of  the  farmer,  who  would  have  been  enti- 
tled to  a  discharge  from  his  landlord,  when  he  had  paid  him  only  four- 
fifths  of  the  rent  really  bargained  for. 

But,  notwithstanding  it  is  thus  obviously  necessary,  in  order  to  prevent 
a  pernicious  subversion  of  private  fortunes,  and  the  falsifying  of  all  pre- 
cedent contracts,  that  the  standard  of  money,  when  once  fixed,  should  be 
maintained  inviolate,  there  is  nothing  that  has  been  so  frequently  changed. 
We  do  not  here  allude  to  variations  affecting  the  value  of  the  bullion  of 
which  the  standard  is  composed,  and  against  which  it  is  impossible  to 
guard,  but  to  variations  in  the  quantity  of  bullion  contained  in  the  same 
nominal  sum  of  money.  In  almost  every  country,  debtors  have  been  en- 
riched at  the  expense  of  their  creditors.  The  necessity,  or  the  extrava- 
gance of  governments,  have  forced  them  to  borrow  ;  and  to  relieve  them- 
selves of  their  incumbrances,  they  have  almost  universally  had  recourse  to 
the  disgraceful  expedient  of  degrading  the  coin  ;  that  is,  of  cheating  those 
who  had  lent  them  money,  and  of  enabling  every  other  debtor  in  their  do- 
minions to  do  the  same. 

The  ignorance  of  the  public  in  remote  ages  greatly  facilitated  this  spe- 
cies of  fraud.  Had  the  names  of  the  coins  been  changed  when  the  quan- 
tity of  metal  contained  in  them  was  diminished,  there  would  have  been  no 
room  for  misapprehension.  But,  though  the  weight  of  the  coins  was  un- 
dergoing perpetual,  and  their  purity  occasional  reductions,  their  ancient 
denominations  were  almost  uniformly  preserved :  and  those  people  who 
saw  the  same  names  still  remaining  after  the  substance  was  diminished  ; 
who  saw  coins  of  a  certain  weight  and  finenes  circulate  under  the  names 
of  florins,  livres,  and  pounds,  and  who  saw  them  continue  to  circulate  as 
such,  after  both  their  weight  and  the  degree  of  their  fineness  had  been 
lessened,  began  to  think  that  they  derived  their  value  more  from  the  stamp 
affixed  to  them,  by  authority  of  government,  than  from  the  quantity  of  the 
precious  metals  they  contained.  This  was  long  a  very  prevalent  opinion. 
But  the  rise  of  prices  which  invariably  followed  every  reduction  of  the 
standard,  and  the  derangement  which  was  thereby  occasioned  in  every 
pecuniary  transaction,  undeceived  the  public,  and  taught  them,  though  it 
may  not  yet  have  taught  their  rulers,  the  expediency  of  preserving  the 
standard  of  money  inviolate. 


114  Money. 


Manner  of  changing  the  Standard. 

Before  proceeding  to  notice  the  changes  made  in  the  currency  of  this 
and  other  countries,  it  may  be  proper  to  observe,  that  the  standard  is  gen- 
erally debased  in  one  or  other  of  the  undermentioned  ways. 

First,  by  simply  altering  the  denominations  of  the  coins,  without  making 
any  alteration  in  their  weight  or  purity.  Thus,  suppose  sixpence,  or  as 
much  silver  as  there  is  in  a  sixpence,  were  called  a  shilling,  then  a  shilling 
would  be  two  shillings,  and  twenty  of  these  shillings,  or  ten  of  our  present 
shillings,  would  constitute  a  pound  sterling.  This  would  be  a  reduction 
of  fifty  per  cent  in  the  standard. 

Secondly,  the  standard  may  be  reduced,  by  continuing  to  issue  coins  of 
the  same  weight,  but  making  them  baser,  or  with  less  pure  metal  and  more 
alloy. 

Thirdly,  it  may  be  reduced,  by  making  the  coins  of  the  same  degree 
of  purity,  but  of  diminished  weight,  or  with  less  pure  metal ;  or  it  may  be 
reduced  partly  by  one  of  these  methods,  and  partly  by  another. 

The  first  of  these  methods  of  degrading  the  standard  was  recommended 
by  Mr.  Lowndes  in  1695,  and  if  injustice  is  to  be  done,  it  is  certainly,  on 
the  whole,  the  least  mischievous  mode  by  which  it  can  be  perpetrated. 
It  saves  all  the  trouble  and  expense  of  a  recoinage  ;  but  as  it  renders  the 
fraud  too  obvious,  it  has  been  but  seldom  resorted  to.  In  inquiries  of  this 
kind,  however,  it  is  rarely  necessary  to  investigate  the  manner  in  which 
the  standard  has  been  degraded.  And  by  its  reduction  or  degradation, 
we  uniformly  mean,  unless  when  the  contrary  is  distinctly  expressed,  a 
diminution  of  the  quantity  of  pure  metal  contained  in  coins  of  the  same 
denomination  without  regard  to  the  particular  mode  in  which  such  diminu- 
tion may  have  been  effected. 

In  conformity  with  what  has  been  observed  in  the  first  section  of  th: 
article,  relative  to  the  universality  of  the  ancient  practice  of  weighing  the 
precious  metals  in  every  exchange,  it  is  found  that  the  coins  of  most  coun- 
tries have  the  same  names  as  the  weights  commonly  used  in  them.  To 
these  weights  the  coins  at  first  exactly  correspond.  Thus  the  talent  was 
a  weight  used  in  the  earliest  periods  by  the  Greeks,  the  as  or  pondo  by 
the  Romans,  the  livre  by  the  French,  and  the  pound  by  the  English, 
Scotch,  &c. ;  and  the  coins  originally  in  use  in  Greece,  in  Italy,  in  France, 
and  in  England,  received  the  same  denominations,  and  weighed  precisely 
a  talent,  a  pondo,  a  livre,  and  a  pound.  The  standard  has  not,  however, 
been  preserved  inviolate,  either  in  ancient  or  in  modern  times.  But  the 
limits  within  which  an  article  of  this  kind  must  be  confined,  prevents  us 
from  tracing  the  various  changes  in  the  money  of  this  and  other  countries, 
with  the  minuteness  which  the  importance  of  the  subject  deserves,  and 
obliges  us  to  notice  only  those  which  were  most  prominent. 

It  is  impossible  in  this  place  to  enter  into  any  discussion  relative  to  the 
value  of  Grecian  money.  It  is,  however,  a  subject  of  no  little  interest  and 
curiosity.  M.  Rome  de  1'Isle,  in  his  Traite  de  Metrologie,  published  in 
1789,  has  given  an  account  of  the  weight  and  fineness  of  an  immense 
number  of  Attic  drachmas  and  tetradrachmas.  But  he  does  not  seem  to 


Money.  115 

have  been  more  fortunate  than  his  predecessors  in  deducing  the  value  of 
the  talent  from  the  weight  of  the  drachmas.  The  errors  and  absurdities 
into  which  modern  critics  and  commentators  have  fallen  in  estimating  the 
value  of  the  sums  mentioned  in  ancient  authors,  is  indeed  astonishing. 
They  are  ably  pointed  out  in  a  short  essay,  De  la  Monnoie  des  Peuples 
Anciens,  in  one  of  the  supplemental  volumes  added  by  Gamier  to  his 
translation  of  the  Wealth  of  Nations. 

History  of  the  Money  of  Rome  —  Weight  of  the  As. 

ROMAN  MONEY.  —  We  learn  from  Pliny,  that  the  first  Roman1  coinage 
took  place  in  the  reign  of  Servius  Tullius,  that  is,  according  to  the  com- 
mon chronology,  about  550  years  before  Christ  The  as,  or  pondo,  of 
this  early  period,  contained  a  Roman  pound  of  copper,  the  metal  then  ex- 
clusively usei  in  the  Roman  coinage,  and  was  divided  into  twelve  parts  or 
uncice.  If  we  may  rely  on  Pliny,  this  simple  and  natural  system  was 
maintained  until  250  years  before  our  era,  or  until  the  first  Punic  war, 
when  the  revenues  of  the  state  being  insufficient,  government  attempted 
to  supply  the  deficiency  by  reducing  the  weight  of  the  as  from  twelve  to 
two  ounces.  But  it  is  extremely  improbable  that  a  government,  which 
had  maintained  its  standard  inviolate  for  300  years,  should  have  com- 
menced the  work  of  degradation,  by  at  once  reducing  it  to  a  sixth  part  of 
its  former  amount ;  and  it  is  equally  improbable  that  so  sudden  and  ex- 
cessive a  reduction  should  have  been  made  in  the  value  of  the  current 
money  of  the  state,  and  consequently,  in  the  debts  due  by  individuals  to 
each  other,  without  occasioning  the  most  violent  commotions.  Nothing, 
however,  is  said  in  any  ancient  writer,  to  entitle  us  to  infer  that  such  com- 
motions actually  took  place  ;  and  we,  therefore,  concur  with  those  who 
think  that  the  weight  of  the  as  had  been  previously  reduced,  and  that  its 
diminution,  which,  it  is  most  probable,  would  be  gradual  and  progressive, 
had  merely  been  carried  to  the  extent  mentioned  by  Pliny  during  the  first 
Punic  war.  In  the  second  Punic  war,  or  215  years  before  Christ,  a  fur- 
ther degradation  took  place,  and  the  weight  of  the  as  was  reduced  from 
two  ounces  to  one  ounce.  And  by  the  Papyrian  law,  supposed  to  have 
passed  when  Papyrius  Turdus  was  tribune  of  the  people,  or  175  years  be- 
fore Christ,  the  weight  of  the  as  was  reduced  to  half  an  ounce,  or  to  j'^th 
of  its  ancient  weight,  at  which  it  continued  till  Pliny's  time  and  long  after- 
wards. 

"  Servius  rex  primus  signavit  ses.  Antea  rudi  usos  Romae  Remeus  tra- 

dit.  Signatum  est  nota  pecudum  unde  et  pecunia  appellata Argen- 

turn  signatum  est  anno  urbis  DLXXXV.  Q.  Fabio  Cos.  quinque  annos  ante 
primum  bellum  Punicum.  Et  placuit  denarius  pro  x.  libris  aeris,  quinarius 
pro  quinque,  sestertium  pro  dipondio  ac  semisse.  Libras  autem  pondus  seris 
imminutum  bello  Punico  primo  cum  impensis  resp.  non  sufficeret,  consti- 
tutumque  ut  asses  sextentario  pondere  ferirentur.  Ita  quinque  partes  factae 

lucri,  dissolutumque  ses  alienum Postea,  Annibale  urgente,  Q.  Fabio 

Maximo  Dictatore,  asses  unciales  facti :  placuitque  denarium  xvi.  assibus 
permutari,  quinarium  octonis,  sestertium  quaternis.  Ita  resp.  dimidium 
lucrata  est.  Mox  lege  Papyria  semunciales  asses  facti."  (Plinii,  Hist. 
Nat.,  lib.  xxxiij.  cap.  3.  Lugd.  Bat.  1669.) 


116  Money. 


Proportion  of  Silver  to  Copper. 

The  denarius,  the  principal  silver  coin  in  use  amongst  the  Romans,  for  a 
period  of  600  years,  was  coined  five  years  before  the  first  Punic  war,  and 
was,  as  its  name  imports,  rated  in  the  mint  valuation  at  ten  asses.  Mr. 
Greaves,  whose  dissertation  on  the  denarius  has  been  deservedly  eulogized 
by  Gibbon  (Decline  and  Fall,  vol.  iii.  p.  89),  shows  that  the  denarius 
weighed  at  first  only  one-seventh  part  of  the  Roman  ounce  (this  is,  indeed, 
decisively  proved  by  a  passage  in  Celsus  :  "  Sed  et  antea  sciri  volo  in 
uncia  pondus  denariorum  esse  septem."  Gels.  lib.  xv.  cap.  17),  which, 
if  Pliny's  account  of  the  period  when  the  weight  of  the  as  was  first  reduced 
be  correct,  would  give  the  value  of  silver  to  copper  in  the  Roman  mint  as 
840  to  1,  which  Mr.  Greaves  very  truly  calls  a  "  most  unadvised  propor- 
tion." But  if  we  suppose,  with  Mr.  Pinkerton  (Essay  on  Medals,  vol.  i. 
p.  132,  edit.  1789),  that  when  the  denarius  was  first  issued,  the  as  only 
weighed  three  ounces,  the  proportion  of  silver  to  copper  would  be  as  252 
to  1,  a  proportion  which,  when  the  as  was  soon  afterwards  reduced  to  two 
ounces,  would  be  as  168  to  1,  or  about  a  third  more  than  in  the  British 
mint.  When,  in  the  second  Punic  war,  the  as  was  reduced  from  two 
ounces  to  one,  the  denarius  was  rated  at  sixteen  asses. 

Value  of  the  Denarius. 

During  his  stay  in  Italy,  Mr.  Greaves  weighed  many  of  the  consular  de- 
narii, that  is,  as  he  explains  himself,  of  the  denarii  that  were  struck  after  the 
second  Punic  war,  and  previously  to  the  government  of  the  Csesars  ;  and 
he  found,  by  frequent  and  exact  trials,  that  the  best  and  most  perfect  of 
them  weighed  62  grains  English  troy  weight.  (Greaves's  Works,  vol.  i.  p. 
262.)  Now,  as  the  English  shilling  (new  coinage)  contains  very  nearly 
87£  grains  standard  silver,  this  would  give  8^d.  for  the  value  of  the  con- 
sular denarius.  We  should,  however,  fall  into  the  grossest  mistakes,  if 
we  indiscriminately  converted  the  sums  mentioned  in  the  Latin  authors 
by  this  or  any  other  fixed  proportion.  It  is  not  enough  to  determine  the 
real  value  of  a  coin,  to  know  its  weight ;  the  degree  of  its  purity  or  the 
fineness  of  the  metal  of  which  it  is  made,  must  also  be  known.  But  Mr. 
Greaves  did  not  assay  any  of  the  denarii  weighed  by  him.  And  though  it 
were  true,  as  most  probably  it  is,  that,  from  the  first  coinage  of  silver  in 
the  485th  year  of  the  city  to  the  reign  of  Augustus,  the  weight  of  the  de- 
narius remained  constant  at  ^th  part  of  a  Roman  ounce,  or  about  62 
grains  ;  and  that,  from  the  reign  of  Augustus  to  that  of  Vespasian,  it  only 
declined  in  weight  from  J-th  to  ^th  of  an  ounce  (Greaves,  vol.  i.  p.  331. 
Gibbon's  Miscellaneous  Works,  vol.  v.  p.  71);  still  it  is  abundantly  cer- 
tain that  its  real  value  had  been  reduced  to  a  much  greater  extent.  As  to 
this  fact  the  authority  of  Pliny  is  decisive ;  for  he  expressly  states,  that 
Livius  Drusus,  who  was  tribune  of  the  people  in  the  662d  year  of  the  city, 
or  177  years  after  the  first  coinage  of  silver,  debased  its  purity,  by  alloying 
it  with  £th  part  of  copper.  (Lib.  xxxiij.  cap.  3,  previously  quoted.)  And 
in  a  subsequent  chapter  (the  ninth)  of  the  same  book,  he  informs  us  that 


Money.  1 17 

Antony  the  triumvir  mixed  iron  with  the  silver  of  the  denarius  ;  and  that, 
to  counteract  these  abuses,  a  law  was  afterwards  made  providing  for  the 
assay  of  the  denarii.  Some  idea  of  the  extent  to  which  the  purity  of  the 
coins  had  been  debased,  and  of  the  disorder  which  had  in  consequence 
been  occasioned,  may  be  formed  from  the  circumstance,  also  mentioned 
by  Pliny,  of  statues  being  everywhere  erected  in  honor  of  Marius  Gratidi- 
anus,  by  whom  the  law  for  the  assay  had  been  proposed.  But  this  law 
was  not  long  respected  ;  and  many  imperial  denarii  are  now  in  existence, 
consisting  of  mere  plated  copper.  (Bazinghen,  Dictionnaire  des  Mon- 
noies,  torn.  ii.  p.  64.) 

Value  of  the  Aureus.  —  Value  of  the  Sestertius. 

Gold  was  first  coined  at  Rome  sixty-two  years  after  silver,  in  the  547th 
year  of  the  city,  and  204  years  before  Christ.  The  aureus  originally 
weighed  ^th  part  of  the  pondo  or  Roman  pound  ;  but  by  successive  re- 
ductions its  weight  was  reduced,  in  the  reign  of  Constantine,  to  only  T^d 
part  of  a  pound.  The  purity,  however,  as  well  as  the  weight  of  the  aureus 
was  diminished.  Under  Alexander  Severus  it  was  alloyed  with  £th  part 
of  silver.  We  learn  from  Dion  Cassius,  contemporary  with  Severus,  that 
the  aureus  was  rated  at  twenty-five  denarii,  a  proportion  which  Mr.  Pink- 
erton  thinks  was  always  maintained  under  the  emperors.  (Essay  on 
Medals,  vol.  i.  p.  148.) 

The  want  of  attention  to  this  progressive  degradation  has  led  the  trans- 
lators of,  and  commentators  on,  ancient  writers,  to  the  most  extraordinary 
conclusions.  The  sestertius,  or  money  unit  of  the  Romans,  was  precisely 
the  fourth  part  of  a  denarius.  "  Nostri  autem,"  says  Vitruvius  (lib  iii. 
cap.  1),  "  primo  decem  fecerunt  antiquum  numerum,  et  in  denario  denos 
aereos  asses  constituerunt,  et  ea  re  compositio  nummi  ad  hodiernum  diem 
denarii  nomen  retinet ;  etiamque  quartam  ejus  partem,  quod  efficiebatur  ex 
duobus  assibus  et  tertio  semisse  sestertium  nominaverunt."  When,  there- 
fore, the  denarius  was  worth  8£d.  the  sestertius  must  have  been  worth 
2£d.  But  the  sestertius  being  thus  plainly  a  multiple  of,  and  bearing  a 
fixed  and  determined  proportion  to,  the  denarius,  and  consequently  to  the 
as,  the  aureus,  and  the  other  coins  generally  in  use,  it  must  have  partaken 
of  all  their  fluctuations.  When  they  were  reduced,  the  sestertius  must  have 
been  likewise  reduced  ;  for  if  it  had  not  been  so  reduced,  or,  if  the  quan- 
tity of  degraded  denarii  and  aurei  contained  in  a  given  sum  of  sestertii 
had  been  increased  in  proportion  to  their  degradation,  nothing,  it  is  obvi- 
ous, would  have  been  gained  by  falsifying  the  standard.  But  as  we  know 
that  on  one  occasion  the  republic  got  rid  of  half  of  its  debts,  respublica  di- 
midium  lucrata  est,  by  simply  reducing  the  standard  of  the  as,  it  is  cer- 
tain that  the  value  of  the  sestertius  must  have  fallen  in  the  same  propor- 
tion, just  as  in  England  we  should  reduce  the  pound  sterling,  our  money 
unit,  by  reducing  the  shillings  of  which  it  is  made  up. 

Writers  on  ancient  coins,  with  the  exception  of  Mr.  Pinkerton,  agree  in 
supposing  the  sestertius  to  have  been  originally,  and  to  have  always  con- 
tinued to  be,  a  silver  coin.  Mr.  Pinkerton  has,  however,  denied  this  opin- 
ion, and,  on  the  authority  of  the  following  passage  of  Pliny,  contends 


118  -.  Money. 

that  the  sestertius  was  at  the  time  when  Pliny  wrote,  whatever  it  might 
have  been  before,  a  brass  coin.  "  Summa  gloria  seris  nunc  in  Marianum 
conversa,  quod  et  Cordubense  dicitur.  Hoc  a  Liviano  cadmiam  maxime 
sorbet,  et  orichalci  bonitatem  imitatur  in  SESTERTIIS,  DUPONDIARIISQUE, 
Cyprio  suo  ASSIBUS  contends."  (Lib.  xxxxiv.  cap.  2.)  That  is,  literally, 
"  The  greatest  glory  of  brass  is  now  due  to  the  Marian,  also  called  that  of 
Cordova.  This,  after  the  Livian,  absorbs  the  greatest  quantity  of  lapis 
calaminaris,  and  imitates  the  goodness  of  orichalcum  (yellow  brass)  in 
our  SESTERTII  and  DUPONDIARII,  the  ASSES  being  contented  with  the  Cy- 
prian (brass)."  Pliny  had  .previously  observed,  that  the  Cyprian  was  the 
least  valuable  brass.  This  passage  is,  we  think,  decisive  in  favor  of  Mr. 
Pinkerton's  hypothesis.  But,  in  the  absence  of  positive  testimony,  the 
small  value  of  the  sestertius  might  be  relied  on  as  a  sufficient  proof  that  it 
could  not  be  silver.  When  the  denarius  weighed  62  grains,  the  sestertius 
must  have  weighed  15^,  and  been  worth  2£d. ;  but  a  coin  of  so  small  a 
size  as  to  be  scarcely  equal  to  one  third  part  of  one  of  our  sixpences,  would 
have  been  extremely  apt  to  be  lost ;  and  could  not  have  been  struck  by  the 
rude  methods  used  in  the  Roman  mint  with  any  thing  approaching  to  even 
tolerable  precision.  It  is,  therefore,  much  more  reasonable  to  suppose 
that  it  was  of  brass. 

Errors  of  Dr.  Arbuthnot  and  others. 

But  though  it  had  not  been  possible  to  produce  such  clear  and  explicit 
evidence  of  the  continued  degradation  of  the  Roman  money,  the  obvious 
absurdity  of  many  of  the  calculations  which  have  been  framed,  on  the 
supposition  of  its  remaining  stationary  at  the  rates  fixed  in  the  earlier  ages 
of  the  commonwealth,  would  have  sufficiently  established  the  fact  of  its 
degradation.  Dr.  Arbuthnot's  Tables  of  Ancient  Coins,  which,  for  nearly 
a  century,  have  been  considered  in  England,  and  in  the  greater  part  of 
the  Continent,  as  of  the  highest  authority,  are  constructed  on  the  hypothe- 
sis that  the  denarii  weighed  by  Mr.  Greaves  were  of  equal  purity  with 
English  standard  silver,  and  that  no  subsequent  diminution  had  been  made 
either  in  their  weight  or  fineness.  The  conclusions  derived  from  such 
data  are  precisely  such  as  we  should  arrive  at,  if,  in  estimating  the  value 
of  a  French  livre  previously  to  the  Revolution,  we  took  for  granted  that  it 
weighed  a  pound  of  pure  silver,  as  in  the  reign  of  Charlemagne.  Amongst 
many  other  things  quite  as  extraordinary,  we  learn  from  Arbuthnot,  that 
Julius  Caesar,  when  he  set  out  for  Spain,  after  his  praetorship,  was 
£  2,018,229  sterling  worse  than  nothing  ;  that  Augustus  received,  in  leg- 
acies from  his  friends,  £  32,291,666  ;  that  the  estate  of  Pallus,  a  freed- 
man  of  Crassus,  was  worth  £  2,421,875,  and,  which  is  still  better,  that  he 
received  £  121,093  as  a  reward  for  his  virtues  and  frugality  ;  that  jEsop, 
the  tragedian,  had  a  dish  served  up  at  his  table  which  cost  £  4,843  ;  that 
Vitellius  spent  £  7,265,612  in  twelve  months,  in  eating  and  drinking ;  and 
that  Vespasian,  at  his  accession  to  the  empire,  declared  that  an  annual  rev- 
enue of  ,£322,916,666  would  be  necessary  to  keep  the  state  machine  hi 
motion.  It  is  astonishing  that  none  of  our  scholars  or  commentators  seem 
ever  to  have  been  struck  with  the  palpable  extravagance  of  such  conclu- 


Money. 


119 


sions,  which,  to  use  the  words  of  Gamier,  "  ont  mis  1'Histoire  Ancienne, 
sous  le  rapport  des  valeurs,  au  meme  degre  de  vraisemblance  que  les  contes 
de  Mille  et  un  Nutis."  They  have,  we  believe,  without  any  exception, 
slavishly  copied  the  errors  of  Arbuthnot ;  and  to  this  hour  the  computations 
in  the  books  on  Roman  antiquities  used  in  our  schools  and  universities  are 
all  borrowed  from  his  work.  It  should  be  remembered  that,  from  the 
greater  poverty  of  the  mines  of  the  Old  World,  and  the  comparatively  small 
progress  made  by  the  ancients  in  the  art  of  mining,  the  value  of  gold  and 
silver  was  much  greater  in  ancient  times  than  at  present.  But,  without 
taking  this  circumstance  into  account,  the  computations  referred  to  are  too 
obviously  erroneous  to  deserve  the  smallest  attention.  Vespasian,  we  be- 
lieve, would  have  been  very  well  satisfied  with  a  revenue  of  twenty  mill- 
ions ;  and  there  are  good  grounds  for  supposing  that  the  Roman  revenue, 
when  at  the  highest  never  amounted  to  so  large  a  sum.  (Gibbon,  vol.  i. 
p.  260.) 

History  of  the  Money  of  France.  —  Degradation  of  the  Livre. 

We  subjoin  an  abridged  table,  calculated  by  M .  Denis,  exhibiting  the 
average  value  of  the  French  Livre  in  different  periods,  from  the  year  800 
to  the  Revolution :  — 


Value  of  the  Lime 

Reigns.                                                      Years. 

in  the  Current 

Money  of  1739. 

From  the  32d  year  of  Charlemagne  to  the  43d  year 

Liv.  Soli.  Den. 

of  Philip  I  or  from  800  to  1103 

78  17     0 

Part  of  the  reign  of  Philip  I.,  Louis  VI.,  and  VII. 
Philip  II.  and  Louis  VIII. 

1103 
1180 

1180 
1226 

18  13     8 
19  18     4| 

Louis  IX.  and  Philip  IV  

1226 

1314 

18     3     5 

Louis  X.  and  Philip  V.     . 

1314 

1322 

17    3     5 

Charles  IV.  and  Philip  VI  

1322 

1350 

14  11   10 

John         ....... 

1350 

1364 

9  19     2| 

Charles  V  

1364 

1380 

998 

Charles  VI  

1380 

1422 

723 

Charles  VII  

1422 

1461 

5  13     9 

Louis  XL         ...... 

1461 

1483 

4  19     7 

Charles  VIH  

1483 

1498 

4  10     7 

Louis  XII.        ...... 

1498 

1515 

3  19     8 

Francis  I  

1515 

1547 

3  11     2 

Henry  II.  and  Francis  II  

1547 

1560 

3    6     4| 

Charles  IX  

1560 

1574 

2  18     7 

Henry  III  

1574 

1589 

2  12   11 

Henry  IV  

1589 

1610 

280 

Louis  XIIL      

1610 

1643 

1  15     3 

Louis  XIV  

1643 

1715 

1    4  11 

Louis  XV  

1715 

1720 

080 

Louis  XV.  and  XVI  

1720 

1789 

100 

Those  who  wish  for  a  detailed  account  of  the  various  changes  in  the 
weight  and  purity  of  the  French  coins,  may,  besides  the  excellent  work  of 
Le  Blanc,  consult  the  elaborate  and  very  complete  tables  at  page  905  of 
the  Traite  des  Mesures  of  Paucton,  and  at  page  197  of  the  Essai  sur  les 
Monnoies  of  Dupre  de  St.  Maur. 

FRENCH  MONEY.  —  From  about  the  year  800,  in  the  reign  of  Charle- 


120  Money. 

magne,  to  the  year  1103,  in  tnat  of  Philip  I.,  the  French  livre,  or  money 
unit,  contained  exactly  a  pound  weight  or  twelve  ounces  (poids  de  marc) 
of  pure  silver.  It  was  divided  into  twenty  sols,  each  of  which,  of  course, 
weighed  ^th  part  of  a  pound.  This  ancient  standard  was  first  violated  by 
Philip  I.,  who  diminished  considerably  the  quantity  of  pure  silver  contained 
in  the  sols.  The  example  once  set,  was  so  well  followed  up,  that  in  1180 
the  livre  was  reduced  to  less  than  a  fourth  part  of  its  original  weight  of 
pure  silver.  In  almost  every  succeeding  reign  there  was  a  fresh  diminu- 
tion. "  La  Monnoye,"  says  Le  Blanc,  "  qui  est  la  plus  precieuse  et  la 
plus  importante  des  mesures,  a  change  en  France  presque  aussi  souvent 
que  nos  habits  ont  change  de  mode."  And  to  such  an  extent  had  the  pro- 
cess of  degradation  been  carried,  that,  at  the  epoch  of  the  Revolution,  the 
livre  did  not  contain  a  seventy-eighth  part  of  the  silver  contained  in  the 
livre  of  Charlemagne.  It  would  then  have  required  7,885  livres  really  to 
extinguish  a  debt  of  100  livres  contracted  in  the  ninth  or  tenth  centuries  ; 
and  an  individual  who, in  that  remote  period,  had  an  annual  income  of  1,000 
livres,  was  as  rich,  in  respect  to  money,  as  those  who,  at  the  Eevolution, 
enjoyed  a  revenue  of  78,850  livres.  (Paucton,  Traits,  des  Mesures,  Poids, 
&c.,  p.  693.) 

It  was  not  to  be  expected,  that  degradations  originating  in  the  necessi- 
ties, the  ignorance,  and  the  rapacity  of  a  long  series  of  arbitrary  princes, 
should  be  made  according  to  any  fixed  principle.  They  were  sometimes 
the  result  of  an  increase  in  the  denomination  of  the  coins,  but  more  fre- 
quently of  a  diminution  of  the  purity  of  the  metal  of  which  they  were 
struck.  A  degradation  of  this  kind  was  not  so  easily  detected ;  and,  in 
order  to  render  its  discovery  still  more  difficult,  Philip  of  Valois,  John,  and 
some  other  kings,  obliged  the  officers  of  the  mint  to  swear  to  conceal  the 
fraud,  and  to  endeavour  to  make  the  merchants  believe  that  the  coins  were 
of  full  value.  (Le  Blanc,  p.  212.)  Sometimes  one  species  of  money 
was  reduced,  without  any  alteration  being  made  in  the  others.  No  sooner, 
however,  had  the  people  in  their  dealings  manifested  a  preference,  as  they 
uniformly  did,  for  the  money  which  had  not  been  reduced,  than  its  circu- 
lation was  forbidden,  or  its  value  brought  down  to  the  same  level  with  the 
rest.  (Id.,  Introduction,  p.  20.)  In  order  to  render  the  subject  more  ob- 
scure, and  the  better  to  conceal  their  incessant  frauds,  individuals  were  at 
one  time  compelled  to  reckon  exclusively  by  livres  and  sols,  at  other  times 
by  crowns  or  ecus  ;  and  not  unfrequently  they  were  obliged  to  refer,  in 
computing,  to  coins  which  were  neither  livres,  sols,  nor  crowns,  but  some 
multiple  or  fractional  part  thereof.  The  injurious  effects  of  these  constant 
fluctuations  in  the  value  of  money  are  forcibly  depicted  by  the  French 
historians  ;  and  so  insupportable  did  they  become,  that  in  the  fourteenth 
and  fifteenth  centuries  several  cities  and  provinces  were  glad  to  purchase 
the  precarious  and  little  respected  privilege  of  having  coins  of  a  fixed 
standard,  by  submitting  to  the  imposition  of  heavy  taxes.  (Le  Blanc, 
p.  93.) 

In  the  Dutchy  of  Normandy,  when  it  was  governed  by  the  English 
monarchs,  there  was  a  tax  upon  hearths  paid  every  three  years,  called 
monetagium,  in  return  for  which  the  sovereign  engaged  not  to  debase  his 
coins.  This  tax  was  introduced  into  England  by  our  early  kings  of  the 


Money.  121 

Norman  race ;  but  Henry  I.,  in  the  first  year  of  his  reign,  was  induced  to 
abandon  it,  and  it  has  not  since  been  revived.  (Liverpool,  On  Coins,  p. 
107.) 

According  to  the  present  regulations  of  the  French  mint,  the  coins  con- 
tain TVhs  of  pure  metal,  and  T\yth  of  alloy.  The/remc,  which  is  equal  to 
1  livre,  0  sols,  3  deniers,  weighs  exactly  5  grammes,  or  77.2205  English 
Troy  grains.  The  gold  piece  of  20  francs  weighs  102.96  English  grains. 
(Peuchet,  Statistique  Elementaire  de  la  France,  p.  538.) 

Of  England.  — Degradation  of  the  Pound  Sterling. 

ENGLISH  MONEY.  —  In  England,  at  the  epoch  of  the  Norman  conquest, 
the  silver,  or  money  pound,  weighed  exactly  twelve  ounces  Tower  weight. 
It  was  divided  into  twenty  shillings,  and  each  shilling  into  twelve  pence, 
or  sterlings.  This  system  of  coinage,  which  is  in  every  respect  the  same 
with  that  established  in  France  by  Charlemagne,  had  been  introduced  into 
England  previously  to  the  invasion  of  William  the  Conqueror,  and  was 
continued,  without  any  alteration,  till  the  year  1300,  in  the  28th  Edward 
I.,  when  it  was  for  the  first  time  violated,  and  the  value  of  the  pound  ster- 
ling degraded  to  the  extent  of  ^f-  per  cent.  But  the  rdally  pernicious 
effect  of  this  degradation  did  not  consist  so  much  in  the  trifling  extent  to 
which  it  was  carried  by  Edward,  as  in  the  example  which  it  afforded  to 
his  less  scrupulous  successors,  by  whom  the  standard  was  gradually  de- 
based, until,  in  1601,  in  the  reign  of  Queen  Elizabeth,  62s.  were  coined 
out  of  a  pound  weight  of  silver.  This  was  a  reduction  of  above  two-thirds 
in  the  standard  ;  so  that  all  the  stipulations  in  contracts,  entered  into  in 
the  reigns  immediately  subsequent  to  the  Conquest,  might,  in  1601,  and 
since,  be  legally  discharged  by  the  payment  of  less  than  a  third  part  of 
the  sums  really  ba'rgained  for.  And  yet  the  standard  has  been  less  de- 
graded in  England  than  in  any  other  country. 

The  tables  annexed  to  this  article  give  an  ample  account  of  these  deg- 
radations, and  also  give  the  weight  of  the  gold  coins,  and  the  proportional 
value  of  gold  to  silver,  estimated  both  by  the  mint  regulations  and  by  the 
quantity  of  fine  gold  and  fine  silver  contained  in  the  different  coins. 

Of  Scotland. 

SCOTCH  MONEY.  —  In  the  same  manner  as  the  English  had  derived  their 
system  of  coinage  from  the  French,  the  Scotch  derived  theirs  of  coin- 
age from  the  English.  From  1296  to  1355,  the  coins  of  both  divis- 
ions of  the  island  were  of  the  same  size  and  purity.  But  at  the  last-men- 
tioned period  it  was  attempted  to  fill  up  the  void  occasioned  by  the  remit- 
tance of  the  ransom  of  David  II.  to  England,  by  degrading  the  coins. 
Till  then  the  money  of  Scotland  had  been  current  in  England,  upon  the 
same  footing  as  the  money  of  that  country  ;  and  the  preservation  of  this 
equality  is  assigned  by  Edward  III.  as  a  reason  for  his  degrading  the  Eng- 
lish coins.  But  this  equilibrium  was  soon  afterwards  destroyed.  In  the 
first  year  of  Robert  III.  (1390)  Scotch  coin  only  passed  for  half  its  nom- 
inal value  in  England ;  and,  in  1393,  Richard  II.  ordered  that  its  currency, 


122  Money. 

as  money,  should  entirely  cease,  and  that  its  value  should  be  made  to  de- 
pend on  the  weight  of  the  genuine  metal  contained  in  it.  "  To  close  this 
point  at  once,"  says  Mr.  Pinkerton,  "  the  Scottish  money  equal  in  value 
to  the  English  till  1355,  sunk  by  degrees,  reign  after  reign,  owing  to  suc- 
ceeding public  calamities,  and  the  consequent  impoverishment  of  the  king- 
dom, till,  in  1600,  it  was  only  a  twelfth  part  of  the  value  of  English  money 
of  the  same  denomination,  and  remained  at  that  point  till  the  union  of  the 
kingdoms  cancelled  the  Scottish  coinage."  (Essay  on  Medals,  vol.  ii.  p. 
99). 

The  tables  at  the  end  of  this  article  exhibit  the  successive  degradations 
both  of  the  Scotch  silver  and  gold  coins. 

At  the  Union,  in  1707,  it  was  ordered  that  all  the  silver  coins  current 
in  Scotland,  foreign  as  well  as  domestic,  except  English  coins  of  full  weight, 
should  be  brought  to  the  Bank  of  Scotland,  to  be  taken  to  the  mint  to  be 
recoined.  In  compliance  with  this  order,  there  were  brought  in, 

Of  foreign  silver  money,  (Sterling),      .  .      £  132,080  17  9 

Milled  Scottish  coins,  .  .  .*.,.,.,  96,856  130 
Coins  struck  by  hammer,  .  .  ...«,-  • .»:  142,180  0  0 
English  milled  coin,  .  .  .  ...  >-  i,  40,000  00 

Total,  ,£411,117  10  9 

Mr.  Ruddiman  conjectures,  apparently  with  considerable  probability, 
that  the  value  of  the  Scotch  gold  coins,  and  of  the  silver  coins  not  brought 
in,  amounted  to  about  as  much  more.  Much  suspicion  was  entertained 
of  the  measure  of  a  recoinage  ;  and  that  large  proportion  of  the  people 
who  were  hostile  to  the  Union,  and  did  not  believe  that  it  would  be  per- 
manent, brought  very  little  money  to  the  bank.  A  few  only  of  the  hoard- 
ed coins  have  been  preserved,  the  far  greater  part  having  either  been 
melted  by  the  goldsmiths,  or  exported  to  other  countries.  (Preface  to 
Anderson's  Diplomata,  p.  176.) 

Of  Ireland. 

IRISH  MONEY.  —  The  gold  and  silver  coins  of  Great  Britain  and  Ireland 
are  now  the  same,  and  have  been  so  for  a  considerable  period.  The  rate, 
however,  at  which  these  coins  used  to  circulate  in  Ireland,  or  their  nomi- 
nal value  as  money  of  account,  was  8£  per  cent,  higher  than  in  Great 
Britain.  This  difference  of  valuation,  though  attended  with  considerable 
inconvenience  in  adjusting  the  money  transactions  between  the  two  coun- 
tries, subsisted  from  1689  till  1825,  when  it  was  put  an  end  to.  For  an 
account  of  the  various  species  of  metallic  money  which  have  at  different 
times  been  current  in  Ireland,  we  must  refer  our  readers  to  Mr.  Simons's 
Essay  on  Irish  Coins  (originally  printed  at  Dublin,  in  1749,  in  4to.,  and 
reprinted  with  some  additions  in  1810) ;  a  work  pronounced  by  Mr.  Hud- 
ing  to  be  "  the  most  valuable  of  all  the  publications  on  the  coinage  of 
any  part  of  the  United  empire."  (Annals  of  the  Coinage,  Preface,  vol. 
i.  p.  11.) 


Money.  123 


Of  Germany,  <]rc. 

MONEY  OF  GERMANY,  SPAIN,  &c.  —  A  similar  process  of  degradation 
had  been  universally  carried  on.  "  In  many  parts  of  Germany,  the  florin, 
which  is  still  the  integer,  or  money  of  account  of  those  countries,  was 
originally  a  gold  coin,  of  the  value  of  about  10s.  of  our  present  money 
(old  coinage).  It  is  now  become  a  silver  coin  of  the  value  of  only  2Qd.  ; 
and  its  present  value,  therefore,  is  only  equal  to  a  sixth  part  of  what  it  was 
formerly.  In  Spain,  the  maravedi,  which  was  in  its  origin  a  Moorish  coin, 
and  is  still  the  money  of  account  of  that  kingdom,  was  in  ancient  times 
most  frequently  made  of  gold.  Le  Blanc  observed  that,  in  1220,  the  mar- 
avedi weighed  84  grains  of  gold,  equal  in  value  to  about  14s.  (old  coinage) 
of  our  present  money.  But  this  maravedi,  though  its  value  is  not  quite 
the  same  in  all  the  provinces  of  Spain,  is  now  become  a  small  copper 
coin,  equal  in  general  to  only  ffiz  of  an  English  penny  !  In  Portugal, 
the  re,  or  reis,  is  become  of  no  greater  value  than  ^/T  of  an  English  pen- 
ny ;  it  is  so  small  that,  in  estimating  its  value  in  other  coins,  it  is  reckoned 
by  hundreds  and  thousands.  The  moeda,  or  moidore,  is  equal  to  4,800 
reis ;  and  this  little  coin  has  now,  in  fact,  no  existence  but  in  name. 
Such  has  been  the  fate  of  all  these  coins,  and  such  is  the  present  state  of 
their  depreciation."  (Liverpool,  On  Coins,  p.  111.) 

Of  Russia.  —  Raising  of  the  Value  of  the  Coin. 

RUSSIAN  MONEY.  —  The  following,  according  to  M.  Storch,  are  the 
fluctuations  in  the  weight  and  value  of  the  rouble,  or  money  unit  of  Rus- 
sia, since  1700. 

Wfiaht  nf       Value  in  Cur- 

Years.  tteRoubi        rent  Roubles 

toie.  -j.  Ig21 

Zolot.  Dolia.  Roll.     Cop. 

Year  1700,          .  .        ..-,:..  11  40  2    70£ 

From  1700  to  1718,          .        .        .  5  67  1    35 

"       1718 "  1731,  .        .        .        .  4  83  1    15£ 

"       1731 "  1762,          ...  5  16  1    22A 

"       1762 "  1821,  ....  4  21  10 

The  principle  of  degradation  has  not,  however,  been  uniformly  acted 
upon.  The  quantity  of  bullion  contained  in  coins  of  the  same  denomina- 
tion has  sometimes,  though  rarely,  been  increased,  and  creditors  enriched 
at  the  expense  of  their  debtors.  This  method  of  swindling  his  subjects  is 
said  to  have  been  first  practised  by  Heliogabalus.  The  Roman  citizens 
being  bound  to  pay  into  the  imperial  treasury  a  certain  number  of  pieces 
of  gold,  or  aurei,  the  emperor,  whose  vices  have  become  proverbial,  to  in- 
crease his  means  of  dissipation,  without  appearing  to  add  to  the  weight  of 
the  taxes,  increased  the  quantity  of  metal  contained  in  the  aureus ;  and 
thus  obtained,  by  a  fraudulent  trick,  what  he  might  not  have  obtained  by  a 
fair  and  open  proceeding.  (Lamp.  Vita.  Alex.  Severi,  ca,p.  39.  —  Per- 
haps Heliogabalus  took  the  hint  from  Licinius,  a  freedman  of  Julius  Caesar, 
who,  in  his  government  of  the  Gauls  under  .Augustus,  divided  the  year  into 


124  Money. 

fourteen  months  instead  of  twelve,  because  the  Gauls  paid  a  certain 
monthly  tribute.  Dion  Cassius,  lib.  72.)  In  France,  the  value  of  the 
coins  has  been  frequently  raised.  During  the  early  part  of  the  reign  of 
Philip  le  Bel,  who  ascended  the  throne  in  1285,  the  value  of  the  coin  had 
been  reduced  to  such  an  extent  as  to  occasion  the  most  violent  complaints 
on  the  part  of  the  clergy  and  landholders,  and  generally  of  all  that  portion 
of  the  public  whose  incomes  were  not  increased  proportionably  to  the  re- 
duction in  the  value  of  money.  To  appease  this  discontent,  and  in  com- 
pliance with  an  injunction  of  the  pope,  the  king  at  length  consented  to 
issue  new  coins,  of  the  same  denomination  with  those  previously  current, 
but  which  contained  about  three  times  the  quantity  of  silver.  This,  how- 
ever, was  merely  shifting  an  oppressive  burden  from  the  shoulders  of  one 
class  to  those  of  another,  less  able  to  bear  it.  The  degraded  money  hav- 
ing been  in  circulation  for  about  sixteen  years,  by  far  the  largest  propor- 
tion of  the  existing  contracts  must  have  been  adjusted  with  reference  to 
it.  No  wonder,  therefore,  that  debtors  should  have  felt  indignant  at  the 
shameful  act  of  injustice  done  them  by  this  enhancement  of  the  value  of 
money,  and  have  refused  to  make  good  their  engagements,  otherwise  than 
in  money  of  the  value  of  that  which  had  been  current  when  they  were 
entered  into.  The  laboring  class,  to  whom  every  sudden  change  in  the 
value  of  money  is  injurious,  having  joined  the  debtors  in  their  opposition, 
they  broke  out  into  open  rebellion.  "  The  people,"  says  Le  Blanc,  "  be- 
ing reduced  to  despair,  and  having  no  longer  any  thing  to  care  for,  lost 
the  respect  due  to  the  edict  of  his  Majesty  ;  —  they  pillaged  the  house  of 
the  master  of  the  mint,  who  was  believed  to  have  been  the  chief  adviser 
of  the  measure,  besieged  tho  temple,  in  which  the  king  lodged,  and  did  all 
that  an  infuriated  populace  is  capable  of  doing."  (Traite  Historique 
des  Monnoyes  de  France,  p.  190.)  The  sedition  was  ultimately  sup- 
pressed ;  but  it  is  not  mentioned  whether  any  abatement  was  made,  by 
authority,  from  the  claims  of  the  creditors  in  the  contracts  entered  into 
when  the  light  money  was  in  circulation.  It  seems  probable,  however, 
from  what  is  elsewhere  mentioned  by  Le  Blanc  (Introduction,  p.  30),  that 
such  was  really  the  case. 

Increase  of  the  Value  of  the  English  Coins  in  the  Reign  of  Edward  VI. 

The  history  of  the  French  coinage  affords  several  instances  similar  to 
the  very  remarkable  one  we  have  now  brought  under  the  notice  of  our 
readers  ;  but,  in  England,  the  new  coinage  in  the  last  year  of  the  reign 
of  Edward  VI.  is  the  only  instance  in  which  the  value  of  money  has  been 
augmented  by  the  direct  interference  of  government.  Previously  to  the 
accession  of  Henry  VIII.,  the  pound  of  standard  silver  bullion,  containing 
lloz.  2dwts.  of  pure  silver,  and  13dwts.  of  alloy,  was  coined  into  thirty- 
seven  shillings  and  sixpence.  But  Henry  not  only  increased  the  number 
of  shillings  coined  out  of  a  pound  weight  of  silver,  but  also  debased  its  pu- 
rity. The  degradation  was  increased  under  his  son  and  successor,  Ed- 
ward VI.,  in  the  fifth  year  of  whose  reign,  seventy-two  shillings  were  coined 
out  of  a  pound  weight  of  bullion ;  but  as  this  bullion  contained  only  three 
ounces  of  pure  silver  to  nine  ounces  alloy,  twenty  of  these  shillings  were 


Money.  125 

only  equal  to  4s.  7f  d.  of  our  present  money,  including  the  seignorage. 
(Folkes's  Table  of  English  Coins,  p.  34.)  It  appears,  from  the  procla- 
mations issued  at  the  time,  and  from  other  authentic  documents,  that  this 
excessive  reduction  of  the  value  of  silver  money  had  been  productive  of 
the  greatest  confusion.  A  maximum  was  set  on  the  price  of  corn  and  other 
necessaries ;  and  letters  were  sent  to  the  gentlemen  of  the  different  coun- 
ties desiring  them  to  punish  those  who  refused  to  carry  their  grain  to  mar- 
ket. But  it  was  soon  found  to  be  quite  impossible  to  remedy  these  disor- 
ders otherwise  than  by  withdrawing  the  base  money  from  circulation. 
This  was  accordingly  resolved  upon ;  and,  in  1552,  new  coins  were  is- 
sued, the  silver  of  which  was  of  the  old  standard  of  purity,  and  which, 
though  less  valuable  than  those  in  circulation,  during  the  early  part  of  the 
reign  of  Henry  VIII.,  were  above  four  times  the  value  of  a  targe  propor- 
tion of  the  coins  of  the  same  denomination  that  had  been  in  circulation 
for  some  years  before. 

It  is  certain,  however,  that  such  a  rise  in  the  value  of  money  could  not 
have  taken  place  without  occasioning  the  most  violent  commotions,  had  all 
the  coins  previously  in  circulation  been  debased.  Equal  injustice,  it  must 
be  remembered,  is  always  done  to  the  poorest,  and  not  least  numer- 
ous class  of  society,  by  increasing  the  value  of  money,  that  is  done 
to  the  wealthier  classes  by  depressing  it  But,  though  government  had 
been  disposed  to  sanction  so  enormous  an  invasion  of  the  right  of  prop- 
erty, it  is  altogether  impossible  that  the  country  could  have  submitted  to 
have  had  400  or  450  per  cent,  added  to  its  taxes  and  other  public  burdens, 
by  a  legerdemain  trick  of  this  kind,  or  that  individuals  would  have  con- 
sented to  pay  so  much  more  than  they  had  originally  bargained  for.  In- 
stead of  deserving  praise  for  accomplishing  such  a  measure,  Edward  VI., 
who  began  the  reformation  of  the  coins,  and  Elizabeth,  by  whom  it  was 
completed,  would  have  justly  forfeited  the  esteem  of  their  subjects,  and 
lost  all  their  popularity.  The  truth  is,  however,  that  little  or  no  change 
had  been  made,  during  all  this  period,  in  the  value  of  the  gold  coins  ;  and 
there  is,  besides,  abundance  of  evidence  to  show,  that  many  of  the  old 
silver  coins  had  remained  in  circulation.  Now,  as  there  is  no  mention 
made  of  the  issue  of  the  new  coins  having  been  attended  with  any  incon- 
venience, it  is  nearly  certain,  as  Mr.  Harris  has  remarked,  that,  during  the 
period  of  the  debasement  of  the  standard,  individuals  had  regulated  their 
contracts  chiefly  with  reference  to  the  gold  or  old  silver  coins  ;  or,  which  is 
the  same  thing,  that  "  they  had  endeavoured,  as  well  as  they  could,  to  keep 
by  the  standard,  as  it  had  been  freed  in  the  preceding  times.'1''  (Harris, 
On  Coins,  part  ii.  p.  3.) 

We  have  been  thus  particular  in  examining  this  measure,  because  it  has 
been  much  referred  to.  It  is  plain,  however,  that  it  can  give  no  support 
to  the  arguments  of  those  who  appeal  to  it  as  affording  a  striking  proof  of 
the  benefits  which  they  affirm  must'always  result  from  restoring  a  debased 
or  degraded  currency  to  its  original  purity  or  weight.  Invariability  of 
value  is  the  great  desideratum  in  a  currency.  To  elevate  the  standard 
after  it  has  been  for  a  considerable  period  depressed,  is  really  not  a  meas- 
ure of  justice,  but  the  giving  a  new  direction  to  injustice.  It  vitiates  and 
falsifies  the  provisions  in  one  set  of  contracts,  in  order  properly  to  adjust 
those  in  some  other  set. 


126  Money. 

This,  however,  as  already  remarked,  is  the  only  instance  in  which  the 
government  of  England  has  ever  interfered  directly  to  enhance  the  value  of 
money.  In  every  other  case,  where  they  have  tampered  with  the  standard, 
it  has  been  to  lower  its  value,  or,  which  comes  to  the  same  thing,  to  reduce 
their  own  debts  and  those  of  their  subjects. 

Pernicious  Effects  of  a  Reduction  of  the  Standard. 

It  is  unnecessary  to  enumerate  in  detail  the  various  bad  consequences 
that  must  have  resulted  from  these  successive  changes  in  the  standard  of 
value.  But,  it  deserves  to  be  remarked,  that  an  arbitrary  reduction  of  the 
standard  does  not  afford  any  real  relief  to  the  governments  by  whom  it 
is  practised.  Their  debts  are,  it  is  true,  reduced  proportionally  to  the  re- 
duction in  the  value  of  the  currency,  but  their  revenues  are,  at  the  same 
time,  reduced  in  the  same  proportion.  A  piece  of  money  that  has  been 
degraded  will  not  exchange  for  the  same  quantity  of  commodities  that  it 
previously  did.  To  whatever  extent  the  standard  may  be  reduced,  prices 
are  very  soon  raised  to  the  same  extent.  If  the  degradation  be  10  per 
cent.,  government,  as  well  as  every  one  else,  will,  henceforth,  be  com- 
pelled to  pay  ^110  for  commodities  previously  obtainable  for  £  100. 
Hence  to  bring  the  same  real  value  into  the  coffers  of  the  treasury,  it  is 
necessary  that  taxation  should  be  increased  whenever  the  standard  is  di- 
minished ;  a  measure  always  odious,  and  sometimes  impracticable. 

But  a  diminution  of  revenue  is  not  the  only  bad  effect  which  govern- 
ments experience  from  reducing  the  standard  of  the  currency.  A  state 
which  has  degraded  its  money,  and  cheated  its  creditors,  is  unable  to  bor- 
row again  on  the  same  favorable  terms  as  if  it  had  acted  with  good  faith. 
We  cannot  expect  to  enjoy  the  reputation  of  honesty  at  the  same  time 
that  we  are  openly  pocketing  the  booty  earned  by  duplicity  and  fraud 
Those  who  lend  money  to  knaves  always  stipulate  for  a  proportionally 
high  rate  of  interest.  They  must  not  only  obtain  as  much  as  may  be  ob- 
tained from  the  most  secure  investments,  but  they  must  also  obtain  an  ad- 
ditional rate  or  premium,  to  cover  the  risk  they  run  in  transacting  with 
those  who  have  given  proofs  of  bad  faith,  and  on  whose  promises  no  reli- 
ance can  be  placed.  A  degradation  of  the  standard  of  value  is,  therefore, 
of  all  others,  the  most  wretched  resource  of  a  bankrupt  government.  It 
will  never,  indeed,  be  resorted  to,  except  by  those  who  are  alike  unprinci- 
pled and  ignorant.  "  It  occasions,"  says  Dr.  Smith, "  a  general  and  most 
pernicions  subversion  of  the  fortunes  of  private  people  ;  enriching,  in  most 
cases,  the  idle  and  profuse  debtor  at  the  expense  of  the  frugal  and  indus- 
trious creditor  ;  and  transporting  a  great  part  of  the  national  capital  from 
the  hands  which  were  likely  to  increase  and  improve  it,  to  those  which  are 
likely  to  dissipate  and  destroy  it.  When  it  becomes  necessary  for  a  state 
to  declare  itself  bankrupt,  in  the  same  manner  as  when  it  becomes  neces- 
sary for  an  individual  to  do  so,  a  fair,  open,  and  avowed  bankruptcy,  is 
always  the  measure  which  is  both  least  dishonorable  to  the  debtor,  and 
least  hurtful  to  the  creditor.  The  honor  of  a  state  is  surely  very  poorly  pro- 
vided for,  when,  in  order  to  cover  the  disgrace  of  a  real  bankruptcy,  it  has 
recourse  to  a  juggling  trick  of  this  kind,  so  easily  seen  through,  and  at 


Money.    •  127 

the  same  time  so  utterly  pernicious."  —  ( Wealth  of  Nations,  vol.  iv. 
p.  42.) 

Some  of  the  bad  consequences  resulting  from  a  change  in  the  value  of 
money  might,  indeed,  be  obviated,  by  enacting,  that  the  stipulations  in  all 
preceding  contracts  should  be  made  good,  not  according  to  the  present 
value  of  money,  but  to  its  value  at  the  time  when  they  were  entered  into. 
This  principle,  which  is  conformable  to  the  just  maxim  of  the  civil  law 
(  Valor  monetce  considerandus  atque  inspiciendus  est,  a  tempore  contractus, 
non  autem  a  tempore  solutionis),  was  acted  upon,  to  a  certain  extent,  at 
least,  by  the  kings  of  France,  during  the  Middle  Ages.  Ordonnances  of 
Philip  le  Bel,  Philip  of  Valois,  and  Charles  VI.,  issued  subsequently  to 
their  having  increased  the  value  of  money,  or,  as  the  French  historians 
term  it,  returned  from  the  foible  to  the  forte  monnoie,  are  still  extant,  in 
which  it  is  ordered,  that  all  previous  debts  and  contracts  should  be  settled 
by  reference  to  the  previous  standard.  But  though  the  same  reason  ex- 
isted, it  does  not  appear  that  any  such  ordonnances  were  ever  issued  when 
the  value  of  money  was  degraded.  It  is  obvious,  indeed,  that  no  govern- 
ment could  derive  any  advantage  whatever  from  reducing  the  value  of 
money,  were  it  to  order,  as  it  is  in  justice  bound  to  do,  that  all  existing 
contracts  should  be  adjusted  by  the  old  standard.  Such  a  measure  would 
reduce  the  revenue  without  reducing  the  incumbrances  of  the  state  ;  whilst, 
by  establishing  a  new  standard  of  value,  and  unsettling  all  the  notions  of 
the  public,  it  would  open  a  door  for  the  grossest  abuses,  and  be  productive 
of  infinite  confusion  and  disorder  in  the  dealings  of  individuals. 

The  odium  and  positive  disadvantage  attending  the  degradation  of  me- 
tallic money,  appear  to  have  at  length  induced  most  governments  to  abstain 
from  it.  But  they  have  only  renounced  one  mode  of  playing  at  fast  and 
loose  with  the  property  of  their  subjects,  to  adopt  another  and  a  still  more 
pernicious  one.  The  injustice  which  was  formerly  done  by  diminishing 
the  quantity  of  bullion  contained  in  the  coins  of  different  countries,  is  now 
perpetrated  with  greater  ease,  and  to  a  still  more  ruinous  extent,  by  the 
depreciation  of  their  paper  currency.  In  the  last  volume  of  the  Cours 
d  Economic  Politique  of  M.  Storch,  there  is  a  very  instructive  account  of 
the  paper  money  of  the  different  continental  states.  We  can  confidently 
recommend  it  as  containing  much  useful  information. 

From  1601  to  1797,  on  Changes  made  in  the  Standard. 

In  the  long  period  from  1601  to  1697,  no  change  was  made  in  the 
standard  of  money  in  this  country.  A  project  for  enfeebling  the  standard 
had  indeed  been  entertained,  both  in  1626  and  1695 ;  but,  in  the  former 
instance,  it  was  quashed  by  the  celebrated  speech  addressed  by  Sir  Robert 
Cotton  to  the  Lords  of  the  Privy  Council,  and  in  the  latter  by  the  opposi- 
tion of  Mr.  Montague,  then  Chancellor  of  the  Exchequer,  in  the  House  of 
Commons,  and  by  the  impression  made  by  the  writings  of  Mr.  Locke,  by 
whom  the  injustice  of  the  scheme  was  admirably  exposed,  out  of  doors. 
It  was  reserved  for  Mr.  Pitt  to  set  aside  a  standard  which  had  been  pre- 
served inviolate  for  nearly  two  centuries.  The  Order  in  Council  of  the  25th 
February,  1797,  and  the  acts  of  Parliament  by  which  it  was  followed  up, 


128  Money. 

effected  a  total  change  in  our  ancient  monetary  system  ;  and,  instead  of 
the  old  standard,  gave  us  the  self-interested  views  and  opinions  of  twenty' 
four  irresponsible  individuals.  The  circulation  of  Bank  of  England  pa- 
per was  secured,  by  its  being  exclusively  issued  in  payment  of  the  interest 
of  the  public  debt,  and  by  its  also  being  received  as  cash  in  all  payments 
into  the  exchequer ;  but  no  attempt  was  made  to  sustain  the  value  of  this 
paper  on  a  par  with  the  value  of  gold  or  silver.  Full  power  was  given  to 
the  directors  of  the  Bank  to  raise  or  depress  the  value  of  money,  as  their 
interest  or  caprice  might  suggest.  They  were  enabled  to  exchange  unlim- 
ited quantities  of  scraps  of  engraved  paper,  of  the  intrinsic  worth,  perhaps, 
of  5s.  a  quire,  for  as  many,  or  the  value  of  as  many,  hundreds  of  thou- 
sands of  pounds.  And,  in  such  circumstances,  our  only  wonder  is,  not  that 
paper  money  became  depreciated,  but  that  its  value  was  not  more  reduced, 
and  that  a  still  greater  quantity  of  bank-notes  were  not  thrust  into  circu- 
lation. 

Effect  of  the  Restriction  in  1797  in  degrading  the  Value  of  Bank  Paper.  —  Extra- 
ordinary Resolution  of  the  House  of  Commons. 

For  the  first  three  or  four  years  after  the  restriction,  the  directors,  una- 
ware, perhaps,  of  the  nature  of  the  immense  power  placed  in  their  hands, 
seem  to  have  regulated  their  issues  nearly  on  the  same  principles  that  had 
regulated  them  while  they  were  obliged  to  pay  in  coin.  It  appears  from 
the  Tables  of  the  Price  of  Bullion,  published  by  order  of  the  House  of 
Commons,  that  until  1801  bank-notes  were  on  a  par  with  gold.  In  1801 
and  1802,  however,  they  were  at  a  discount  of  from  8£  to  7-£  per  cent. ; 
but  they  again  recovered  their  value  ;  and  from  1803  to  1809,  both  inclu- 
sive, they  were  only  at  a  discount  of  £2  13s.  6d.  per  cent.  But  in  1809 
and  1810,  the  directors  appear  to  have  totally  lost  sight  of  every  principle 
by  which  their  issues  had  previously  been  governed.  The  average 
amount  of  bank-notes  in  circulation,  which  had  never  exceeded  17^-  mill- 
ions, nor  fallen  short  of  16£  millions,  in  any  one  year,  from  1802  to  1808, 
both  inclusive,  was  in  1809  raised  to  £  18,927,833;  and,  in  1810,  to 
£  22,541,523.  The  issues  of  country  bank  paper  were  increased  in  a  still 
greater  proportion  ;  and,  as  there  was  no  corresponding  •  increase  in  the 
business  of  the  country,  the  discount  on  bank-notes  rose  from  £2  13s. 
6d.,  in  1809,  to  £  13  9s.  6d.  per  cent,  in  1810.  The  recommendation  to 
return  to  cash  payments,  contained  in  the  Report  of  the  Bullion  Commit- 
tee, presented  to  the  House  of  Commons  in  1810,  appears  to  have  given 
a  slight  check  to  the  issues  of  the  Bank.  All  apprehensions  from  this 
quarter  were,  however,  speedily  dissipated ;  for  in  May,  181 1,  when  guineas 
were  notoriously  bought  at  a  premium,  and  bank-notes  were  at  an  open 
discount,  as  compared  with  gold  bullion,  of  upwards  of  ten  per  cent,  the 
House  of  Commons  not  only  refused  to  fix  any  certain  period  for  reverting 
to  cash  payments,  but  actually  voted  a  resolution,  declaring  that  the  pro- 
missory notes  of  the  Bank  of  England  had  hitherto  been,  and  were  then, 
held  to  be,  in  public  estimation,  equivalent  to  the  legal  coin  of  the  realm. 

This  memorable  resolution  ;  a  resolution  which  took  for  granted  that  a 
part  was  equal  to  a  whole  ;  that  £  90  and  £  100  were  the  same  thing ; 


Money.  129 


Bankruptcy  of  the  Country  Banks  in  1814,  1815,  and  1816,  Cause  of  the  Rise  in 
the  Value  of  Bank  Paper. 

This  memorable  resolution  ;  a  resolution  which  took  for  granted  that  a 
part  was  equal  to  a  whole ;  that  £  90  and  £  100  were  the  same  thing  ; 
relieved  the  bank  from  all  uneasiness  respecting  the  interference  of  Par- 
liament, and  tempted  the  Directors  to  increase  the  amount  of  paper  in  cir- 
culation. The  consequence  was,  that  in  1812,  it  was  at  an  average  dis- 
count of  20i  ;  in  1813,  of  23  ;  and,  in  1814,  of  25  per  cent.  This  was 
the  maximum  of  depreciation.  The  importation  of  foreign  corn,  subse- 
quent to  the  opening  of  the  Dutch  ports  in  1814,  having  occasioned  a  great 
decline  of  the  price  of  the  principal  article  of  agricultural  produce,  pro- 
duced an  unprecedented  degree  of  distress,  first  among  the  farmers,  and 
latterly  among  the  country  bankers.  It  is  estimated  that,  in  1814,  1815, 
and  1816,  no  fewer  than  240  private  banking  companies  either  became 
altogether  bankrupt,  or,  at  least,  stopped  payment ;  and  the  reduction  that 
was  thus  occasioned  in  the  quantity  of  bank  notes  in  circulation,  raised 
their  value  so  rapidly,  that,  in  October,  1816,  the  discount  was  reduced  to 
£1  Ss.  Id.  per  cent.  In  1817  and  1818,  the  average  discount  on  bank 
paper,  as  compared  with  gold,  did  not  exceed  £2  13s.  2<Z.  per  cent.  In 
the  early  part  of  1819,  it  rose  to  about  six  per  cent.,  but  it  very  soon  de- 
clined ;  and  in  1820  and  1821  paper  was  nearly  on  a  level  with  gold. 
(See  Table,  on  English  Paper  Money,  annexed  to  this  article.) 

These  fluctuations  were  exceedingly  injurious.  From  1809  to  1815, 
the  creditors  of  every  antecedent  contract,  land-holders  whose  estates  had 
been  let  on  lease,  stock-holders,  and  annuitants  of  every  description,  —  all, 
in  short,  who  could  not  raise  the  nominal  amount  of  their  claims  or  of  their 
incomes  proportionally  to  the  fall  in  the  real  value  of  money,  were  to  this 
extent  losers.  The  injustice  that  would  have  been  done  to  the  creditors  of 
the  state  and  of  individuals,  who  had  made  their  loans  in  gold,  or  paper 
equivalent  to  gold,  by  raising  the  denomination  of  the  coin  twenty-five  per 
cent.,  however  gross  and  palpable,  would  not  have  been  greater  than  was 
actually  done  them  in  1814,  by  compelling  them  to  receive  payment  of 
their  just  debts  in  paper  depreciated  to  that  extent.  Circumstances  which 
could  neither  be  controlled  by  the  Bank  of  England  nor  the  Government, 
put  an  end,  as  has  been  seen,  to  this  system.  But  we  suffered  much,  and 
perhaps  are  still  suffering  somewhat  from  the  sacrifices  imposed  by  the 
rise  in  the  value  of  money. 

Act  59th  of  George  III.  did  not  raise  the  Value  of  the  Currency. 

And  yet,  strange  to  say,  there  is  a  considerable  party  amongst  us  who, 
are  even  now  (1837),  at  the  end  of  eighteen  or  twenty  years,  clamoring 
for  a  fresh  reduction  of  the  standard.  It  is  no  doubt  true  that  after  a  cur- 
rency has  been  for  a  considerable  period  depreciated,  equal  injustice  is 
done  by  again  raising  its  value,  as  was  done  by  first  depressing  it  There 
is  good  reason,  however,  to  doubt,  whether  the  depreciation  from  1809  to 
1815  (for  the  depreciation  of  2£  per  cent,  during  the  seven  preceding 


130  Money. 

• 

years  is  too  inconsiderable  to  be  taken  into  account)  extended  over  a  suffi- 
ciently lengthened  period  to  have  warranted  the  legislature  in  departing 
from  the  old  standard.  But,  without  giving  any  opinion  on  this  point, 
which  is  confessedly  one  of  considerable  difficulty,  it  is  sufficient  to  re- 
mark, that  the  value  of  the  currency  was  raised,  independently  altogether 
of  the  interference  of  government.  The  destruction  of  country  bank  pa- 
per, occasioned  by  the  renewed  intercourse  with  the  Continent,  and  the 
consequent  introduction  of  cheap  foreign  corn,  raised  the  value  of  paper, 
in  October,  1816,  to  within  1|  per  cent,  of  par.  Now,  as  the  act  59  Geo. 
III.  was  not  passed  until  1819,  and  as  the  currency  had  not  been  depreci- 
ated in  the  interim,  we  confess  our  inability  to  discover  the  grounds  on 
which  it  is  affirmed  to  have  been  the  cause  of  that  rise  in  the  value  of 
money  which  took  place  three  years  before  it  was  in  existence.  The  pro- 
ceedings in  1819  did  not  really  add  three  per  cent,  to  the  value  of  Bank 
paper,  nor  were  they  intended  to  raise  it.  (At  the  period  when  Sir  Rob- 
ert Peel's  bill  was  passed,  bullion  was  at  £  4  an  ounce  ;  consequently, 
the  depreciation  was  only<£2  13s.  2d.  percent.)  Their  great  object 
was  to  shut  the  door  against  a  new  depreciation,  and  to  prevent  paper, 
which  had  for  three  years  been  nearly  on  a  level  with  gold,  being  again 
degraded.  By  maintaining  the  old  standard,  or,  which  is  the  same  thing, 
by  maintaining  the  currency  at  a  value  nearly  corresponding  to  that  to 
which  it  had  attained  in  1816,  1817,  and  1818,  Parliament  certainly  gave 
permanence  to  the  injury  which  the  rise  in  the  value  of  money  had  occasioned 
to  the  debtors  in  all  the  contracts  entered  into  between  1810  and  1815  ; 
but  if,  instead  of  maintaining  this  old  standard,  they  had  raised  the  mint 
price  of  bullion  to  its  market  price  in  18 14,  they  would  have  done  an  equal 
injury  to  the  far  more  numerous  body  of  creditors,  in  all  the  contracts  en- 
tered into  previously  to  1810,  and  in  the  three  years  subsequent  to  autumn 
1816. 

Standard  as  now  fixed  ought  be  maintained  inviolate. 

Under  these  circumstances,  it  was  impossible  to  adopt  any  measure  ca- 
pable of  giving  general  satisfaction  to  those  whose  interests  were  so  widely 
different ;  and  against  which  many  plausible,  and  even  forcible  objections, 
might  not  have  been  stated.  We  are  firmly  persuaded,  however,  that  the 
legislature  followed  that  course  which  was,  on  the  whole,  the  wisest  and 
most  advantageous.  It  must  be  remembered,  that  much  of  that  incon- 
venience and  distress,  which  always  result  from  every  sudden  rise  in  the 
value  of  money,  had  been  got  over  in  1817  and  1818.  The  rents  of  such 
farms  as  had  been  let  during  the  depreciation  had  been  very  generally  re- 
duced, a  vast  number  of  annuity  bonds  had  been  cancelled,  and  prices  and 
wages  had  begun  to  accommodate  themselves  to  the  new  scale  of  value. 
Sir  Robert  Peel's  bill  gave  stability  to  arrangements  which  had  been 
brought  about  by  the  natural  course  of  events ;  and,  by  fixing  the  stand- 
ard at  its  former  limit,  secured  us,  as  long  at  least  as  we  have  good  sense 
and  honesty  to  maintain  it  inviolate,  against  the  risk  of  future  derange- 
ment and  fluctuation. 

But,  even  if  it  could  be  shown  that  the  59  Geo.  III.  was  inexpedient  at 


Money. 


131 


the  time  when  it  was  passed,  that  would  add  nothing  to  the  plea  of  those 
who  are  now  contending  for  its  repeal.  All  the  objections  which  it  was 
possible  to  make  to  the  degradation  of  the  standard  in  1819,  must  apply 
with  a  thousand  times  the  force  to  every  scheme  for  degrading  it  in  1837  ; 
while,  on  the  other  hand,  all  the  arguments  that  could  have  been  urged 
in  favor  of  the  measure  at  the  former  period  are  now  quite  worthless. 
The  restored  standard  has  been  maintained  for  eighteen  years  ;  and  ninety- 
nine  out  of  every  hundred  of  the  existing  contracts  have  been  entered  into 
with  reference  to  it.  To  tamper  with  it  now  would  be  the  extreme  of 
madness.  We  should  again  witness  the  most  pernicious  subversion  of 
private  fortunes.  Debtors  would  be  enriched  at  the  expense  of  their  cred- 
itors ;  the  ignorant  and  unwary  would  become  the  -prey  of  the  cunning 
and  the  crafty ;  and  capitalists  would  be  eager  to  transfer  their  stock  from 
a  country  where  it  was  impossible  to  lend  it,  except  at  the  risk  of  getting 
it  repaid  in  a  depreciated  currency.  "  Whatever,  therefore,"  to  avail 
ourselves  of  the  just  and  forcible  expressions  of  Mr.  Harris,  "  may  be  the 
fate  of  future  times,  and  whatever  the  exigency  of  affairs  may  require,  it 
is  to  be  hoped  that  that  most  awkward,  clandestine,  and  most  direful 
method,  of  cancelling  debts  by  debasing  the  standard  of  money,  will  be 
the  last  that  shall  be  thought  of."  —  (On  Money  and  Coins,  part  ii.  p. 
108.) 


TABLES  RELATIVE  TO  THE  MONEY  OF  GREAT  BRITAIN  AND  OTHER  COUNTRIES, 

ACCOUNT  op  THE  RELATIVE  VALUE  OP  GOLD  AND  SILVER  IN  THE  PRINCIPAL  TRADING  PLACES  OP  THE 
WORLD,  COMPUTED  FROM  THE  PROPORTIONAL  QUANTITY  OP  PURE  METAL,  IN  THEIR  PRINCIPAL 
COINS,  AND  THE  LEGAL  OR  CURRENT  PRICE  OB  THOSE  COINS  RESPECTIVELY. 


By  Mint 
Regulations. 

By  Assays. 

Names  of  the  Coins  from  which  the  Pro- 
portions are  taken. 

England,                2 

f  Proved  correct 

!Per  Guinea  and  Old  Shilling. 

By  Old  Coinage  f 

15.2096  to  1 

J  by  the  Trials 

By  New  Coinage 

14.2878  to  1 

£  of  the  Fix. 

Per  Sovereign  and  New  Shilling. 

Amsterdam,   . 

15.8735  to  1 

{  Per  10  Guilder  Piece  decreed  in  1816,  and 

)      Silver  Florin  of  the  same  date. 

Hamburgh,     . 

15  to  1  nearly 

14.83  to  1 

l  Per  Ducato  reckoned  at  6  Marks  Banco 
1      and  Rixdollar. 

Paris,  . 

15.5  to  1 

15  5  to  1 

Per  20  Franc  Piece,  and  5  Franc  Piece. 

Madrid,  . 

16  to  1         $ 

15-851 
16-46  \  to1 

Per  Doubloon  and  Dollar  of  different  Coinages 

Lisbon, 

13.56  to  1 

13  33  to  1 

Per  Joannese  and  New  Silver  Crusado. 

Leghorn,         .       . 

14.65  to  1 

14-32  to  1 

Per  Ruspono  and  Francescone. 

Genoa, 

15.34  to  1 

15-35  to  1 

Per  Genovina  and  Scudo. 

Naples,   . 

15.21  to  1 

Per  Oncetto  and  Ducato    (Coinage  of  1818  ) 

Venice, 

15  to  1  nearly 

14-35  to  1 

Per  Sequin  and  Ducat. 

Petersburg,     . 

15  tol  nearly 

15-25  to  1 

Per  Ducat  and  Ruble. 

United  States,    . 

IStol 

15-94  to  1 

Per  Eagle  and  Dollar. 

Bengal,  . 

14.857  to  1 

14-827  to  1 

Per  Gold  Mohur  and  Sicca  Rupee. 

Madras, 

13.872  to  1 

13.857  to  1 

Per  Star  Pagoda  and  Current  Rupee. 

Bombay,         .  .    . 

15  tol 

15  tol 

Per  Gold  Rupee  and  Silver  Rupee. 

China, 

14.25to  1 

<  Per  Tale  of  Gold,  and  the  Average  price 

j      of  Spanish  Dollars. 

132 


Money. 


ENGLISH    MONEY.  —  ACCOUNT   OP    THE    ENGLISH    SILVER   COINS  ;    SHEWING   THEIR  VALUE  ; 

THB  BEIGNORAGE  OR  PROFIT  UPON  THE  COINAGE,  AND  THE  PRICE  PAID  TO  THE  PUBLIC  BY  THE  HINT, 
FOR  THE  POUND  TROY  OF  STANDARD  GOLD  AND  SILVER,  FROM  THE  CoNdUEST  TO  THE  YEAR  1816. 
(THIS  AND  THE  NEXT  THREE  TABLES  ARE  TAKEN  FROM  PART  II.  OF  ESSAYS  ON  MONEY,  EXCHANGES, 

AND  POLITICAL  ECONOMY,  by  Henry  James.) 


SILVER. 

1 

2 

3 

0|> 

5 

A.D. 

Anno  Regni. 

s 
V. 

i| 

|| 

il! 

|§  ! 

ll 

f* 

•2  e 

-9-i-t 

*>ij 

• 

II 

S-go 

"g1*  «s 

!§•§ 

!.•-•*  s' 

fit  t-« 

C<  5?=" 

^cS  5, 

*i  a.3?3 

oz.dts. 

£s.d. 

£s.d. 

£s.  d. 

£  s.  d. 

1066 

Conquest, 

11      2 

100 

1280 

8  Edward  L 

<(     it 

1    0    0 

010 

0  19  0 

1     0    3\ 

1300 

28     "        " 

ii     n 

1    0    3 

0    1    2j 

0  19   0£ 

,       . 

1344 

18  Edward  HI. 

ii     n 

103 

013 

0  19  0 

1     0    85 

1349 

23     "         " 

ii     ii 

126 

0    1    3 

I    1   3 

128 

1356 

30     "        " 

ii    ii 

1    5    0 

0    0  10 

1    4   2 

1     5    91 

1394 

18  Richard  IL 

it    ii 

150 

0   0  10 

142 

1     5    9^ 

1401 

3  Henry  IV. 

ii    ii 

1    5    0 

0   0  10 

1    4   2 

1     5    91 

1421 

9  Henry  V. 

ii    n 

1  10    0 

010 

190 

1   10  llf 

1425 

4  Henry  VL 

ii    ii 

1  10    0 

0    1    0 

190 

1   10  111 

1464 

4  Edward  IV. 

ii    ii 

1  17    6 

046 

1  13   0 

15    2J 

1465 

5     "        " 

ii    ii 

1  17    6 

046 

1  13   0 

15    2s 

1470 

49  HenrvVL 

n    n 

1  17    6 

020 

1  15   6 

17  105 

1482 

22  Edwa'rdlV. 

it    n 

1  17    6 

0    1    6 

1  16   0 

18    4? 

1483 

1  Rich.  HI 

it    it 

1.17   6 

016 

1  16  0 

18    45 

1485 

1  Henry  VII. 

it     ii 

1  17    6 

016 

1  16   0 

18    45 

1509 

1  tfenryVIIL 

n    it 

1  17    6 

010 

1  16   6 

18  111 

1527 

18      "        " 

ii    ii 

200 

0    1    Of 

1  18  11» 

18  ll| 

250 

010 

240 

2   14    0 

1543 

34      "         " 

10     0 

280 

080 

280 

2     4    4j 

1545 

36       "         " 

6     0 

280 

200 

2  16    0 

2   11    9§ 

1546 

37      "         " 

4     0 

280 

440 

300 

2  15    6 

1547 

1  Edward  VL 

4     0 

280 

440 

300 

2   15    6 

1549 

3       "         " 

6     0 

3  12   0 

400 

340 

2   19    2§ 

1551 

5       "         " 

3     0 

3  12    0 

ii       ii         ti 

11     0 

300 

(C 

ii       ii         ii 

1552 

6      "         " 

11      1 

300 

0    1    0 

2  19    0 

2   19    3; 

1553 

1  Mary, 

11     0 

300 

010 

2  19    0 

2   19    6§ 

1560 

2  Elizabeth, 

11     2 

300 

016 

2  18    6 

2   18    6 

1600 

43      "        " 

n    it 

320 

020 

300 

300 

H 

it       ii         ii 

1604 

2  James  L 

ii     ii 

320 

026 

2  19    6 

2   19    6 

1626 

2  Charles  L 

it    n 

320 

020 

300 

300 

1666 

18  Charles  II. 

n    n 

320 

000 

3    2,  0 

320 

1717 

3  George  I. 

it    ii 

320 

000 

320 

320 

1816 

56  George  HI. 

ii    n 

360 

040 

•       • 

•        • 

Money. 


133 


ENGLISH  MONEY.  —  ACCOUNT  OF  THE  ENGLISH  GOLD  COINS  ;  SHEWING  THEIR  VALUE  ;  THE  SEIONOR- 

AGE  OR  PROFIT  UPON  THE  COINAGE,  AND  THE  PRICE  PAID  TO  THE  PUBLIC  BY  THE  MINT,  FOR  THE  POUND 
TROY  OF  STANDARD  GOLD,  PROM  THE  CONQUEST  TO  THE  YEAR  1816.  (THIS  AND  THE  TWO  FOLLOWING 
TABLES  ARE  TAKBN  FROM  PART  II.  OF  ESSAYS  ON  MONEY,  EXCHANGES,  AND  POLITICAL  ECONOMY, 

by  Henry  James.) 


GOLD. 

6 

7 

8 

'     •  9 

10 

ij 

V§ 

o  4 

•i's'^ 

•S  "2  =3  S1 

A.  D. 

Anno  Regni. 

$t 

s'S 
•s?u 

sfci 

|!K 

•j 

Is 

*~ 

t^i 

o  oS*> 

|  a 

"i  s> 

.2  a 

0>S 

•Sv>§>»~ 

ia 

»•§  o 

2>°  . 

.S~  R-Q 

i  s  «!§> 

Kji 

a;  II 

Hi! 

ifO  1  1 

cTts.  gns. 

£   «•  d. 

£  s.  d. 

£  s.  d. 

£  s.  d. 

1066 

1280 

Conquest, 
8  Edward  I. 

OQ           it                U 

.       • 

•       • 

1300 
1344 

2v 

18  Edward  III. 

23    3j 

13    3    4 

084 

13  15   0 

12  10    8 

1349 

23      "         " 

<c     cc 

14    0    0 

0    11    8 

13    8    4 

13    3    9 

1356 

30      "         " 

cc      cc 

15    0    0 

068 

14  13   4 

14    8    4 

1394 

18  Richard  II. 

((    « 

15    0    0 

060 

14  15   0 

14    9  11 

1401 

3  Henry  IV. 

«c     c» 

15    0    0 

060 

16  15   0 

14    9  11 

1421 

9  Henry  V. 

cc      <c 

16  13    4 

060 

16    8   4 

16    2    9 

1425 

4  Henry  VI. 

cc     cc 

16  13    4 

0      5  10 

16    7   6 

16    1  11 

1464 

4  Edward  IV. 

cc     cc 

20  16    8 

2    10    0 

18    6    8 

18    0    5 

1465 

5      "        " 

ct     cc 

33  10    0 

1      0  10 

21    9    2 

21    1  10 

1470 

49  Henry  VI. 

cc     cc 

23  10    0 

0    13    0 

21  17   0 

21    9    7 

1482 

22  Edward  IV. 

cc      cc 

33  10    0 

076 

22    2    6 

21  15    0 

1483 

1  Rich.  III. 

cc     cc 

32  10    0 

076 

22    2    6 

21  15    0 

1485 

1  Henry  VII. 

cc     « 

32  10    0 

076 

22    2    6 

21  15    0 

1509 

1  Henry  VIII. 

(C       CC 

22  10    0 

026 

22    7    6 

22    0    0 

1527 

18     "        " 

(C       CC 

24    0    0 

028 

23  17    4 

22    0    0 

« 

<(        cc           « 

CC       CC  f 

27    0    0 

029 

26  17    3 

. 

. 

33    0    £ 

25    2    6 

030 

24  19    6 

24  19    6 

1543 

34      "    '    M 

23    0 

28  16    0 

140 

27  12   0 

26    8    0 

1545 

36      "         " 

23    0 

30    0    0 

2    10    0 

27  10    0 

27  10    0 

1546 

37      "         " 

20    0 

30    0    0 

500 

27  10   0 

27  10    0 

1547 

1  Edward  VI. 

30    0 

30    0    0 

1    10    0 

28  10    0 

31    7    0 

1549 

1  K.K.1 

3      "         " 

511        d 

33    0 

34    0    0 

1      0    0 

33    0   0 

33    0    0 

IdOl 

<M     <Jt( 

36    0    0 

11 

1C            ((                 (( 

•£>     33  1 
23    0    I 

33    0    0 

.       . 

.         . 

. 

1552 

6      "         " 

23    3JU 

36    0    0 

029 

86  17    3 

. 

cc 

u      «         « 

32    0    ) 

33    0    0 

030 

83  17    0 

83  17    0 

1553 
1560 

1  Mary, 
2  Elizabeth, 

23    3j 
23    3i 

36    0    0 
36    0    0 

030 
050 

36  17    0 
35  15    0 

33    0    8 

M 

«      «        c< 

22    0 

33    0    0 

040 

32  16    0 

83  16    0 

1600 

43      "         " 

23    3j 

36  10    0 

0    10    0 

36    0    0 

. 

M 

cc      cc         c< 

23    0 

33  10    0 

0    10    0 

33    0   0 

83    0    0 

1604 

2  James  1. 

32    0 

37    4    0 

1     10    0 

35  14   0 

86  14    0 

1626 

2  Charles  I. 

cc     cc 

41    0    0 

1      1    6 

39  18   7 

89  18    7 

1666 

18  Charles  II. 

cc     u 

44  10    0 

000 

44  10   0 

44  10    0 

1717 

3  George  I. 

cc     cc 

46  14    6 

000 

46  14   6 

46  14    6 

1816 

56  George  III. 

cc     cc 

46  14    6 

000 

46  14    6 

46  14    6 

64 


134 


Silver  Coins. 


ENGLISH  MONEY.  —  ACCOUNT  OP  THE  QUANTITY  OP  FINE  SILVER  COINED  INTO  20s.  OR  THE  POUND 
STERLING;  THB  QUANTITY  OP  STANDARD  SILVER,  OF  lloz.  2dicts.  FINE,  AND  ISdtcts.  ALLOY,  CON- 
TAINED IN  20s.  OR  THE  POUND  STERLING,  AND  THE  QUANTITY  OF  STANDARD  SILVER  WHICH  WAS  DE- 
LIVERED TO  THB  MINT,  BY  THB  PUBLIC,  FOR  20s.  OF  SILVER  MONEY,  IN  THE  DIFFERENT  REIGNS,  FROM 

THE  TIME  OF  EDWARD  L  TO  THE  REIGN  OF  GEORGE  III.    AND  AN  ACCOUNT  OF  THE  PROPORTIONATE 

VALUE   OF  FINE    GOLD    TO  FINE  SILVER,    ACCORDING   TO   THE  NUMBER  OF   GRAINS  CONTAINED  IN  THE 

COINS.    CALCULATED  IN  GRAINS  AND  lOOOt/i  PARTS  TROY  WEIGHT. 


• 

SILVER. 

•5     *>0 

3ij 

!*  13    fi 

»*| 

fc  :§  8 

•§  fe  § 

"2  *•*•*•* 

ip 

*B    §  .H 

l|.s 

A.D. 

Anno  Regni. 

-III 

V        w      *J 

^fl 

4!l 

VS'S 

1*1 

|^8 

O1    **    *Q 

«  El 

ill 

II 

tfc-3 

2     S     SP   £ 

5.8 

1)0    -  s> 

^0  "M    "**      S 

tO  Q    'C 

•^     O     aS 

t        «0*  «*3 

V^  (N    "S    ^S 

"w             *^      . 

2   ^   s 

?•?? 

i*f  J 

«*<;   «  -S 

,     o  <?•-•* 
h  -i:  tg  o 

1  8  •§ 

•§  <  ^   s 

8  •§  '§ 

g   •"    K    -3 

|  s  a  s. 

s,  »  i  2 

*5  S  § 

s  iT  9  •£ 

te;  «  8.E 

III*! 

C3      *J              .*» 

£  "^"o1  8 

Grains. 

Grains. 

Grains. 

Gold  to  Silver. 

1066 

Conquest, 

4995*000 

5400*000 

•       • 

.       .        . 

1280 

8  Edward  L 

4995-000 

5400*000 

5684*210 

... 

1344 

18  Edward  HI. 

4933*333 

6333-333 

5684'210 

1    tO    12*091 

1349 

23     "         " 

4440*000 

4800*000 

5082-352 

1     "     11*571 

1356 

30    "        " 

3996*000 

4320*000 

4468-965 

1    "     11*558 

1401 

3  Henry  IV. 

3996*000 

4320*000 

4468-965 

1     "     11*158 

1421 

9  Henry  V. 

3330*000 

3600-000 

3724*137 

1     "     10*331 

1464 

4  Edward  IV. 

2664-000 

2860*000 

3272*727 

1     "     10*331 

1465 

5     "         " 

2664-000 

2880*000 

3272-727 

i    "    iri58 

1470 

49  Henry  VI. 

2664-000 

2880*000 

3042*253 

1     "     11*158 

1482 

22  Edward  IV. 

2664-000 

2880*000 

3000*000 

1     "     H'153 

1509 

1  HenryVHI. 

2664-000 

2880*000 

2958*904 

1     "     11*158 

1527 

18      "        " 

2368-000 

2560*000 

2618*181 

1     "     11*268 

1543 

34         ((            a 

2000-000 

2162*162 

2594'594 

1     "     10*434 

1545 

36       "         " 

1200'OOQ 

1297'297 

2223*938 

1     "      6*818 

1546 

37      "         " 

800*000 

864*864 

2075*675 

1     "      5*000 

1547 

1  Edward  VI. 

800*000 

864*864 

2075-675 

1     "      5*000 

1549 

3       "         " 

800*000 

864*864 

1945-945 

1     "       5*151 

1551 

5       "         " 

400*000 

• 

.        . 

. 

" 

((             («                 (C 

1760*000 

1902*702 

.        . 

i  "   irooo 

1552 

6       "         " 

1768*000 

1911-351 

1943-757 

1     "     11*050 

1553 

1  Mary, 

1760*000 

1902-702 

1935-050 

1     "     11*057 

1560 

2  Elizabeth, 

1776*000 

1920-000 

1969-230 

1     "     11*100 

1600 

43       "         " 

1718*709 

1858*064 

1920-000 

1     "     10*904 

1604 

2  James  I. 

1718*709 

1858-064 

1936-134 

1     "     12-109 

1626 

2  Charles  L 

1718*709 

1858-064 

1920-000 

1     "     13*346 

1666 

18  Charles  n. 

•1718*709 

1858'064 

1856-064 

1     "     14*485 

1717 

3  George  I. 

1718-709 

1858-064 

1858*064 

1    "     15*209 

1816 

56  George  HI. 

1614-545 

1745-454 

• 

1     "     14*287 

65 


Gold  Coins. 


135 


ENGLISH  MONEY.  —  ACCOUNT  op  THE  auANTiTY  OF  FINE  GOLD  COINED  INTO  20s.  OR  THE  POUND 

STERLING  ;  THB  ftUANTITY  OP  STANDARD  COLD  OP  lloZ.  2dtt>tS.  FINE,  AND  l^dlttS.  ALLOY,  CONTAINED 
IN  20*.  OR  THB  POUND  STERLING,  AND  THE  Q.UANTITY  OF  STANDARD  GOLD  WHICH  WAS  DELIVERED  TO 
THE  HINT,  BY  THE  PUBLIC,  FOB  20s.  OP  SILVER  MONEY,  IN  THE  DIFFERENT  REIGNS,  FROM  THE  TIMS 

op  EDWARD  I.  TO  THB  REIGN  OF  GEORGE  HI.    AND  AN  ACCOUNT  OP  THE  PROPORTIONATE  VALUE  OP 

FINE  COLD  TO  FINE  SILVER.  ACCORDING  TO  THE  PRICE  PAID  BY  THE  MINT  TO  THE  PUBLIC.  CAL- 
CULATED IN  GRAINS  AND  lOOOlA  PARTS  TROY  WEIGHT. 


GOLD. 

•5  .5 

o    ? 

•f  !.« 

"13   o    v 
3".^° 

•2  s?  § 

ill 

«»  ° 

K   *-3    *"* 

be  « 

|  J 

i  ~  ** 

1  8-1 

•    9    fl 

^  **  "£ 

A.  D. 

Anno  Regni 

^1  8" 

Jl* 

C£4 

&•*•! 

til 

!!| 

w  *  i 

Hi 

*t| 

*»»  *   3     . 

i>  &  y 

J  Js""2 

•*   o   S 

|I|f 

1             C     0 

S   3     «  "S 

Grains. 

Grain*. 

Grains. 

Gold  to  Silver. 

t 

Iflfifi 

Conouest 

i\j\j\j 
1280 

8  Edward  I. 

' 

^      t 

,      . 

'.        '.        '. 

1344 

18  Edward  EL 

40T998 

445*080 

459*625 

1    tO    12-479 

1349 

23      "         " 

383*705 

418-588 

436*777 

I     "     11-741 

1356 

30      "        " 

358*145 

390-682 

399*561 

1     "     11*286 

1401 

3  Henry  IV. 

358*125 

390*682 

397*303 

1    "     H'350 

1421 

9  Henry  V. 

322*312 

351  613 

356-963 

1    "     10*527 

1464 

4  Edward  IV. 

257*850 

281*291 

319*648 

1    "     10*331 

1465 

5      "         " 

238-750 

260-454 

273-109 

1    "     11-963 

1470 

49  Henry  VL 

238-750 

260*454 

268-202 

1    "     11-446 

1482 

22  Edward  IV. 

238*750 

260*454 

264'869 

1    "     11*429 

1509 

1  Henry  VIIL 

238-750 

260*454 

261-909 

1    "     11*400 

1527 

18      "         " 

2KT149 

229*253 

230*630 

1    "     11*455 

1543 

34      •'         " 

191-666 

209*090 

218*181 

1    "     12*000 

1545 

36      "         " 

176'000 

192-000 

209*454 

1     "     W714 

1546 

37      "         " 

160-000 

174*645 

209*454 

1     "     10*000 

1547 

1  Edward  VL 

160-000 

174*545 

183-732 

1     "     11*400 

1549 

3      "         " 

155-294 

169*412 

174*645 

1     "     11*250 

1  Vil 

5      "         " 

LiJtJ  1 

u 

ti      it         n 

160-000 

174-545 

,       ^ 

1552 

6      "        " 

160-000 

174*545 

175*342 

1    "     11*186 

1553 

1  Mary, 

159-166 

173-636 

174*369 

1     "     11*198 

1560 

2  Elizabeth, 

160-000 

174*545 

175-609 

I    "     11*815 

1600 

43      "         " 

157'612 

171*940 

174-645 

1    "     11*100 

1604 

2  James  I. 

141*935 

154*838 

161*344 

1     "     1ST109 

1626 

2  Charles  I. 

128*780 

140*487 

144-255 

1     "     13*431 

1666 

18  Charles  II. 

118*651 

129*438 

129*438 

1     "     14*485 

1717 

3  George  I. 

IIS^OOI 

123*274 

123'274 

1     "     15*909 

1816 

56  George  III. 

113*001 

123*274 

123'274 

.       . 

66 


136 


Money. 


SCOTS  MONEY. — ACCOUNT  OF  THE  NUMBER  OF  POUNDS,  SHILLINGS,  AND  PENNIES  SCOTS.  WHICH 

HAVE  BEEN  COINED  OUT  OF  ONE  POUND  WEIGHT  OF  SlLVER,  AT  DIFFERENT  TIMES  ;  WITH  THE  DE- 
GREE Of  PURITY  OF  SUCH  SILVER,  OR  ITS  FINENESS  FROM  THE  TEAR  1107  TO  THE  YEAR  1601.  (From 
Cardonnell's  NUJIISMATA  SCOTLE,  p.  24.) 


A.  D. 

Anno  Rtgni. 

Purity. 

Attoy. 

Value  of  money 
coined  out  of  a, 
Ib.  of  silver. 

From 

oz.  pw. 

oz.  pw. 

£   9.     d. 

1107 

Alexander  I.          ~J 

David  I. 

William 

to 

Alexander  II. 

11      2 

0     18 

1       0       0 

Alexander  III. 

1296 

John  Baloil, 

From 

I 

1306 
to 

^Robert  L 

11      3 

0      18 

1       1       0 

1329 

j 

1366 

David  II.                38 

11      2 

0      18 

150 

1377 

39 

11      2 

0      IS 

194 

From 

1 

1371 

I  Robert  n. 

11      2 

0      18 

194 

to 
1390 

J 

1393 

Robert  IE.             4 

11      2 

0      18 

1      12       0 

1424 

James  I.                19 

11      2 

0      18 

1      17       6 

1451 

James  II.               15 

11      3 

0      18 

3       0       4 

1456 

20 

11      2 

0      18 

4      16        0 

1475 

James  IE.              16 

11      2 

0      18 

704 

1484 

24 

11      2 

0      18 

700 

1488 
1489 

James  IV.         \  H 

11      2 

0      18 

700 

1529 

James  V.                16 

11      0 

i     e 

9      12       0 

1544 

Mary,                       3 

11    e 

1        0 

9      12       0 

1556 

14 

11      9 

1        0 

13        0       0 

1565 

23 

11      0 

1        0 

18       0       0 

1567 

James  VL                1 

11      0 

1       0 

13       0        0 

1571 

5 

9      0 

3       0 

16      14       0 

1576 

10 

8      0 

4        0 

16      14        0 

1579 

13 

11      0 

1        0 

22       0        0 

1581 

15 

11      0 

1        0 

24       0       0 

1597 

31 

11      0 

1       0 

30        0       0 

1601 

35 

11      0 

1       0 

36        0       0 

ENGLISH  COINAGE.  —The  first  Coinage  in  England  was  under  the  Romans  at  Camulodunum,  or  CbJ- 
cheater.  English  Coin  was  of  different  shapes,  as  square,  oblong,  and  round,  until  the  middle  ages, 
when  round  Coin  only  was  used. 

1257.   The  first  Gold  Coin  struck. 
\357.  Gold  Florin  struck.  —  Edward  III. 
494,   Old  Sovereigns  first  minted. 
503.   Shillings  first  coined. 
1553.   Crowns  and  Half-Crowns. 
560.   Irish  Shillings. 
631.   Modern  Milling  introduced. 


665.  Half-pence  and  Farthings. 


67 


1673.   Guineas  first  corned. 
1673.   Double  Guineas    " 
1673.   Five  Guineas       ''• 
1673.   Half-Guineas        " 
1716.  Quarter-Guineas. —  3Geo.  m 
1797.  Seven  Shilling  Pieces  Coined. 
1797.   Two- Penny  Copper  Pieces  " 
1816.   Sovereigns.  —  New  Coinage. 


Money. 


137 


SCOTS  MONEY. — ACCOUNT  OF  THE  NUMBER  OP  POUNDS,  SHILLINGS,  AND  PENNIES  SCOTS,  WHICH 

HAVE   BEEN    COINED  OUT   OF   ONE   POUND  WEIGHT  OP  GOLD ;    WITH  THE  DEGREE  OF   THEIR   PURITY, 
AND  THE  PROPORTION  THAT  GOLD  BORE  TO  THE  SILVER. 


A.D. 

Anno  Regm. 

Fineness. 

Alloy. 

Value    of   the. 
coin  coined  out 
of  one,   pound 
of  gold. 

Pound  of  pure 
gold    wft<r//?d 
of  pure  sliver. 

oz.  pta.  ST. 

oz.  pto.  gr. 

£    s.    d. 

Ib.oz.pic.gr. 

1371,  &c. 

Robert  II. 

11    18    18 

0      1     6 

17     12     0 

11   1   17  22 

1390,  &c. 

Robert  III. 

11     18    18 

0      1     6 

19      4     0 

11   1   17  2-2 

1424 

James  I.            19 

11    18    18 

0      1     6 

22     10     0 

11   1   17  22 

1451 

James  II.          15 

11     18    18 

0      1      6 

33      6     0 

98     411 

1456 

20 

11     18    18 

0      1      6 

50      0     0 

9  8     4   14 

1475 

James   III.       16 

11     18    18 

016 

78     15     0 

10  2     0  20 

1484 

24 

11     18    18 

0      1      6 

73    15     0 

10  5     7     9 

1488 

James  IV.          1 

11     18    18 

0      1      6 

78     15     0 

10  5     7     9 

1529 

James  V.           16 

11     18     18 

0      1      6 

108      0     0 

10  5     7     9 

1556 

Mary,               14 

11      0      0 

1      0     0 

144      0     0 

10  5     8     6 

1577 

James  VI.         10 

11      0      0 

1      0     0 

240      0     0 

10  5     8     6 

1579 

13 

10    10      0 

1    10     0 

240      0     0 

11   5     2  SO 

1597 

31 

11      0      0 

1      0     0 

360      0     0 

12  0     0     0 

1601 

35 

11      0      0 

100 

432      0     0 

12  0     0     6 

1633 

Charles  I.          9 

11      0      0 

100 

492      0     0 

13  2    1   11 

ENGLISH  PAPER  MONEY.  —  ACCOUNT  OP  THE  AVERAGE  MARKET  PRICE  OP  BULLION  IN  EVERY  TEAK 
FROM  1800  TO  1821,  (TAKEN  FROM  PAPERS  LAID  BEFORE  THE  HOUSE  OF  COMMONS,)  OF  THE  AVERAGE 
VALUE  PER  CENT.  OF  THE  PAPER  CURRENCY,  ESTIMATED  FROM  THE  MARKET  PRICE  OF  GOLD  FOR  THK 
SAME  PERIOD,  AND  OF  THE  AVERAGE  DEPRECIATION  OF  THE  PAPER  CURRENCY. 


Year*. 

Av'rge  price 
of  gold  per 
ounce. 

Average  per 
cent,  of  the 
valuation  of 
the  currency 

Average   de- 
preciation 
per  cent. 

Years. 

Av'rge  price 
of  gold  per 
ounce. 

Average  per 
cent,    of  the 
valuation  of 
the  currency. 

Average   de- 
preciation 
per  cent. 

£  s.   d. 

£   s.    d. 

£    s.  d. 

£   s.   d. 

£    s.  d. 

£   s.  d. 

1800 

3  17  lOj 

100    0    0 

Nil. 

1811 

446 

92    3    2 

1  16  10 

1801 

450 

91  12   4 

878 

1812 

4  15    6 

79    6    3 

20  14    9 

1802 

440 

92  14    2 

7    5  10 

1813 

5    1    0 

77    2    0 

22  18    0 

1803 

400 

97    6  10 

2  13    2 

1814 

540 

74  17    6 

25    2    6 

1804 

400 

97    6  10 

2  13    2 

1815 

4  13    6 

83    5    9 

16  14    3 

1805 

400 

97    6  10 

2  13    2 

1816 

4  13    6 

83    6    9 

16  14    3 

1806 

400 

97    6  10 

2  13    2 

1817 

400 

97    6  10 

2  13    3 

1807 

400 

97    6  10 

2  13    2 

1818 

400 

97    6  10 

•1  13    2 

1808 

400 

97    6  10 

2  13    2 

1819 

4    1    6 

96  11    0 

490 

1809 

400 

97    6  10 

2  13    2 

1820 

3  19  11 

97    8    0 

2  12    0 

1810 

4  10    0 

86  10    6 

13    9    6 

1821 

3  17  10j 

100    0    0 

Nil. 

COINING. — This  operation  was  originally  performed  by  the  metal  being  placed  between  two  steel 
dies  struck  by  a  hammer.  In  1553,  a  mill  was  invented  by  Antonie  Brucker,  and  introduced  into 
England,  in  the  year  1562.  An  engine  for  coining  was  invented  by  Balancier,  in  1617.  The  great  im- 
provements of  the  art  were  effected  by  Boulton  and  Watt,  at  Soho,  in  1788,  and  subsequently.  The  art 
was  rendered  perfect  by  the  creation  of  the  present  costly  machinery  at  the  Mint  in  London,  com- 
menced in  1811.  —  Haydn. 

68 


138 


Money. 


GOLD  COINS  OF  DIFFERENT  COUNTRIES.  —  A  TABLE  CONTAINING  THE  ASSAYS,  WEIGHTS,  AND 
VALUES  op  THE  PRINCIPAL  GOLD  COINS  OF  ALL  COUNTRIES,  COMPUTED  ACCORDING  TO  THE  MINT  PRICK 
OP  GOLD  IN  ENGLAND,  AND  FROM  ASSAYS  MADE  BOTH  AT  LONDON  AND  PARIS,  WHICH  HAVE  BEEN 
FOUND  TO  VERIFY  EACH  OTHER. 

The  London  Assays  in  this  Table  have  been  made  by  Robert  Bingley,  Esq.,  the  King's  Assay  Master 
of  the  Mint,  and  those  at  Paris  by  Pierre  Frederic  Bonneville,  Essayeur  du  Commerce,  as  published  in 
his  elaborate  work  on  the  coins  of  all  nations. 

Specimens  of  all  the  foreign  coins  brought  to  London  for  commercial  purposes  have  been  supplied  for 
this  Table  from  the  Bullion  Office,  Bank  of  England,  by  order  of  the  Bank  Directors,  and  have  been  se- 
lected by  John  Humble,  Esq.,  the  chief  of  that  office,  who  also  examined  the  Tables  in  their  progress. 
It  may  likewise  be  added,  that  the  Mint  Reports  of  these  commercial  coins  are  chiefly  from  average 
assays ;  and  that  all  the  computations  have  been  carefully  verified  by  different  calculators.  (Note  by 
Dr.  Kelly  to  the  second  edition  of  the  Cambist,  published  in  1821.) 


Denomination  of  Coins. 

Assay. 

Weight. 

Standard 
Weight. 

Cont'ts 
in  pure 
Gold. 

Value  in 
Sterling. 

car.  gr. 

dts.  gr. 

dwt.gr.  mi. 

grains. 

s.    d. 

Austrian     (Souverain, 

W.ooi 

3  14 

3  13  15 

78-6 

13  10-92 

Dominions  ^Double  Ducat,       .       . 
Ducat  KrernnitZjHungar'n. 

B.    12J 
B.     13 

4  12 
2    5$ 

4  20    6 

2  10    3 

106'4 
53'3 

18    9-97 
9    5-91 

Bavaria.      Carolin,  .... 

W.32 

6    5£ 

5    5  10 

115 

20    4'23 

Max  d'or,  or  Maximilian, 

W.32i 

4    4 

3  14    0 

77 

13    7-44 

Ducat,    .... 

B.    12* 

2    5J 

2  19  11 

52'8 

9    4*12 

Berne.          Ducat,  (double  in  prop'n.) 

B.  1  1* 

1  23 

2    2    1 

45-9 

8    1-48 

Pistole  

W.oi* 

4  21 

4  19    0 

105-5 

18    7'86 

Brunsteick.  Pistole  (double  in  prop.), 

W.  o  1} 

4  21{. 

4  19    5 

105'7 

18    8-48 

Ducat,   .... 

B.  10* 

2    5| 

289 

51-8 

9    2 

Cologne.       Ducat,  .... 

B.     12 

2    5} 

298 

52-6 

9    3-70 

Denmark.     Ducat  current, 

W.  03J 

2    0 

1  21  19 

42-2 

7    5'62 

Ducat  specie, 

B.     12 

2    5| 

298 

52'6 

9    3-70 

Christian  d'or, 

W.o  i 

4    7 

4    5  16 

93-3 

16    6'14 

England.      Guinea,  .... 

Stand. 

5    9$ 

5    9  10 

IIS'7 

21    0 

Half  Guinea,  . 

Stand. 

2  16J 

2  16  15 

59*3 

10   6 

Seven  Shilling  Piece,    . 

Stand. 

1  19 

1  19    0 

'39-6 

7    0 

Sovereign, 

Stand. 

5    3^ 

555 

113*1 

20   0 

France.         Double  Louis  (before  1786), 

W.O  2 

10  11 

10    5    6 

224-9 

39    9-64 

Louis,    .... 

W.O  2 

5    5i 

5    2  12 

112*4 

19  10-71 

Double  Louis  (since  1786), 

W.oi* 

9  20 

9  15  19 

212-6 

37    7-53 

Louis,    .... 

W.oii 

4  22 

4  19  19 

106-3 

18    9*75 

D'ble  Napoleonor40  francs 

W.oij 

8    7 

830 

179 

31    8'36 

Napoleon,  or  20  francs,  . 

W.oii 

4    3t 

4    1  10 

89'7 

15  10'5 

New  Louis  (double,  &c.) 

same  as  the  Napoleon, 

Frankfort-on-the-Maine.    Ducat,     . 

B.    12* 

2    5J 

2    9  14 

52 

9    4-34 

Geneva.        Pistole,  old,   . 

W.O  2 

4    H 

4    4  18 

92-5 

16    4-45 

Pistole,  new,  .       ..        . 

W.o  oj 

3  15} 

3  15    4 

80 

14    1-9 

Genoa.          Sequin,  .... 

B.     13} 

2    5| 

2  10    6 

53-4 

9    5'41 

Hamburgh.  Ducat  (double  in  prop.), 

B.     121 

2    5J 

2    9  14 

52'9 

9    4-35 

Hanover.      George  d'or,  . 

W.ou 

4    6J 

453 

92'6 

16    4'66 

Ducat  

B.    131 

2    6$ 

2  10    3 

OS'S 

9    5*19 

Gold  Florinfd'ble  in  prop.), 

W.  3  Oj. 

2    2 

1  18    6 

39 

6  10.83 

Holland.       Double  Ryder, 

Stand. 

1221 

12  21    0 

283-2 

50     1'46 

Ryder,  .... 

Stand. 

6    9 

690 

140*2 

24    9-75 

Ducat,    .... 

B.    1  2t 

2    5J          2    9  12 

52'8 

9    4'13 

69 


Tables  of  Gold  Coins. 


139 


Denomination  of  Coins. 

Assay. 

Weight. 

Standard 
Weight. 

Cont'ts 
in  pur 
Gold. 

Value  in 
Sterling. 

car.   gr. 

dwt.  gr. 

dwt.  gr.  mi 

grains. 

s.        d. 

Malta.          Double  Louis, 

W.13i 

10  16 

9  18  IS 

215*3 

38    1*25 

Louis,    .... 

W.I  3 

5    8 

4  21  16 

108 

19    1*37 

Demi  Louis,  . 

W.12J 

2  16 

2  11    3 

64'5 

9    7*75 

Milan.          Sequin,  .... 

B.    13 

2    5J 

2  10    0 

53-2 

9    4*98 

Doppia  or  Pistole,  . 

W.oi 

4    1} 

408 

88*4 

15    7*74 

Forty  Lire  piece  of  1808, 

W.o  i* 

8    8 

840 

179-7 

31    9*64 

Naples.         Six  Ducat  piece  of  1783, 

W.  0  2i 

5  16 

5  12  18 

121'9 

21    6*89 

Two  Ducat,  or  Sequin  1762 

W.12* 

1  20* 

1  16    6 

37'4 

6    7*42 

Three   Ducat,  or  Oncetta 

of  1818, 

B.    1  3} 

2  10^ 

2  15    1 

68'1 

10    3*40 

Netherlands.  Gold  Lion,  or  14  Florins, 

Stand 

5    7J 

5    7  16 

117-1 

20    8'69 

Ten  Florin  piece  (1820), 
Parma.         Quadruple  Pistole, 

W.oi* 
W.  10 

4    7* 
18    9 

4    5  15 
17  12  18 

93-2 
886 

16    5'93 
68    3*78 

Pistole  or  Doppia  of  1787 

W.O  3 

4  14 

4  10    4 

97-4 

17    2-85 

Ditto  of  1796, 

W.ioi 

4  14 

4    8  14 

95-9 

16  11*67 

Maria  Theresa  (1818),  . 

W.oi* 

4    3} 

4    1  10 

89-7 

15  10-5 

Piedmont.     Pistole  coined  since  1785, 

W.OH 

5  20 

5  17    0 

125-6 

22    2*76 

Sequin  (}  in  proportion), 

B.    12} 

2    5j 

2    9  12 

62-9 

9    4-34 

Carlino,  coined  since  1785 

W.oii 

29    6 

28  20    0 

634'4 

112   3'33 

Piece  20  f  cs,  or  Marengo 

W.20 

4    3i 

3  18    4 

82-7 

14    7*63 

Poland.         Ducat,  .... 

B.    12} 

2    5J 

2    9  12 

62*9 

9    4*34 

Portugal.     Dobraon  of  24,000  rees,  . 

Stand. 

34  12 

34  12    0 

759 

134    3-96 

Dobra  of  12,800  rees,     . 

Stand. 

18    6 

18    6    0 

401-5 

71    0-70 

Moidore  or  Lisbonine,  . 

Stand. 

6  22 

622    0 

152'2 

26  11-24 

Piece  of  16  testoons,  or 

1,600  rees,  . 

W.  oof 

2    6 

2   6  14 

49*3 

8    8'70 

Old  Crusado  of  400  rees, 

W.  oc} 

0  16 

0  14  18 

13'6 

2    4-88 

New  Crusado  of  480  rees, 

W.o  of 

0  16* 

0  16    2 

14-8 

2    T43 

Milree  (coined  1755), 

Stand. 

0  19* 

0  19  15 

18-1 

3    2-44 

Prussia.        Ducat  of  1748, 

B.    12} 

2    6} 

2    9  14 

62-9 

9    4*34 

Ducat  of  1787, 

B.    1  2 

2    6} 

296 

62*6 

9    3*71 

Frederick  (double)  1769, 

W.oij 

8  14 

8    9  18 

185 

32    8*90 

Frederick  (single)  1778, 

W.oii 

4    7 

454 

92*8 

16    5*08 

Frederick  (double)  1800, 

W.O  2 

8  14 

896 

184-5 

32    7*84 

Frederick  (single)  1800, 

W.O  2 

4    7 

4    4  13 

92-2 

16    3*42 

Rome.           Sequin  (coined  since  1760) 

B.    13} 

2   4} 

290 

52*2 

9    2*86 

Scudoof  the  Republic, 

W.oi* 

17    OJ 

16  16    6 

367 

64  11*43 

Russia.         Ducat  of  1796, 

B.    12} 

2    6 

2  10    0 

53*2 

9    4'98 

Ducat  of  1763, 

B.     12 

2    5) 

298 

52*6 

9    3*71 

Gold  ruble  of  1756, 

Stand. 

1    0} 

1    0  10 

22'5 

3  11'78 

Ditto  of  1799, 

W.o  0^ 

0  18} 

0  18  14 

in 

3    0'31 

Gold  Poltin  of  1777, 

Stand. 

0    9 

090 

8'2 

1    6*41 

Imperial  of  1801,  . 

B.     12i 

717t 

868 

181*9 

32    2*31 

Half  Imperial  of  1801,   . 

B.    12i 

3  20} 

434 

90*9 

16    1-05 

Ditto  of  1818, 

B.  ooi 

4    8} 

4    3  12 

91-3 

16    1*98 

Sardinia.      Carlino  (}  in  proportion), 

W.O  2* 

10    74 

923  16 

219-8 

30    8*10 

Xarony.         Ducat  of  1784, 

B.     12 

2    5J 

298 

62'6 

9    3*71 

Ducat  of  1797,        .  '     . 

B.    12} 

2    SJ 

2    9  14 

62'9 

9    4*34 

Augustus  of  1754,  .        . 

W.02I 

4    6} 

438 

91-2 

16    1*69 

Augustus  of  1784,  . 

W.o  11 

4    6} 

4    4  12 

92*2 

16    3'81 

70 


140 


Money. 


Denomination  of  Coins. 

Assay. 

Weight. 

Standard 
Weight. 

Cont'ts 
in   pure 
Gold. 

Value  in 
Sterling. 

car.  gr. 

dwt.  gr. 

dtet.  gr.  mi. 

grains. 

s.      d. 

Sicily.           Ounce  of  1751, 

W.  1  2* 

2  20* 

2  15    8 

58*2 

10    3-60 

Double  Ounce  of  1753,  . 

W.  12 

5  17 

5    7  14    . 

117 

20    8-48 

Spain.          Doubloon  of  1772,  . 

W.  0  2* 

17    8* 

61  21  16 

372 

65  10*05 

Quadruple  Pistole  of  1801, 

W.  11 

17    9 

16    9    6 

360*5 

63    9'62 

Pistole  of  1801,      . 

W.  11 

4    8* 

426 

90'1 

15  11-35 

Coronilla,  gold  dol.  of  1801. 

W.  12* 

1    3 

1    0  18 

22'8 

4    0-42 

Sweden.        Ducat,  .... 

B.    12 

2    5 

2    8  13 

51'9 

9    2'22 

Switzerland.Pislo\e,  Helvetic,  of  1800, 

W.oij 

4  21j 

4  19    9 

105-9 

18    8'91 

Treves.          Ducat,  .... 

B.    12 

2    B| 

298 

52'6 

9    3-71 

Turkey.        Sequin  of  1773, 

W.  2  2* 

2    5J 

123    6 

43'3 

7    7-94 

Sequin  fonducli,  1789,   . 

W.  3  3* 

2    5j 

1  22  16 

42*9 

7    Til 

Halfmisseir  (1818), 

W.53* 

0  18}. 

0  13    5 

12'16 

2     1-82 

Sequiu  fonducli,    . 

W.23 

2    5 

1  22    7 

42'5 

7    6-26 

Yermeebeshlek,     . 

B.    03* 

2    1} 

3    4  13 

70'3 

12    5-30 

Tuscany.      Zecchino  or  sequin, 

B.     13* 

3    5J 

2  10  14 

53'6 

9    5'83 

Ruspone  of  Etruria, 

B.   13S 

6  17- 

7    7  13 

161 

28    5-93 

U.  Slates.     Eagle  (*  and  *  in  prop.), 

W.  o  o* 

11    6 

11    4    8 

246*1 

43    6'66 

Venice.          Zecchino  or  sequin, 

B.     13* 

2    6 

2  10  10 

53'6 

9    5'83 

Wirtemb'gh.  Carolin, 

W.32 

6    3* 

540 

113'7 

20    1-47 

Ducat, 

B.    12 

2    5 

2    8  12 

51-9 

9    2*22 

Zurich.         Ducat,   .... 

B.     12 

2    5} 

298 

52'6 

9    3'71 

EAST  INDIES. 

East  India.  Rupee,  Bombay  (1818), 

B.  oo* 

7  11 

7  11  13 

164'7 

29    1-78 

Rupee  of  Madras  (ISIS),  • 

Stand. 

7  12 

7  12    0 

165 

29    2-42 

Pagoda,  Star, 

W.30 

2    4} 

1  21  11 

41-8 

7    4'77 

SILVER  COINS  OF  DIFFERENT  COUNTRIES. —A  TABLE  CONTAINING  THE  ASSAYS,  WEIGHTS, 
AND  VALUES  OP  THE  PRINCIPAL  SILVER  COINS  OF  ALL  COUNTRIES,  COMPUTED  AT  THE  RATE  OP  5s.  2d. 
PER  OUNCE  STANDARD,  FROM  ASSAYS  MADE  BOTH  AT  THE  LONDON  AND  PARIS  MINTS. 


Denomination  of  Coins. 

Assay. 

Weight. 

Standard 
Weight. 

Cont'ts 
in  pure 
Silver. 

Value  in 
Sterling. 

oz.  diet. 

dwt.  gr. 

diet.  gr.  mi. 

grains. 

s.     d. 

Austria        Rixdollar  Francis  H.  ,  1800, 

W.I    5 

18    1 

16    0    4 

355-5 

4    1-64 

Rixdollar  of  Hungary, 

W.I    2 

18    1 

16    6    1 

360'9 

4    2'39 

Half-Rixdollar  or  Florin, 

W.I    3 

9    0* 

8    2    1 

179'6 

2    1-07     ! 

Copftsuck  or  20  creutzer, 

W.4    3 

4    6* 

2  16    3 

59-4 

0    8-29 

17  Creutzer  piece, 

W.4    8 

4    0 

2    9  18 

53-5 

o  7-47 

Halbe  copf,  or  10  creutzer, 

W.  5    6 

2  11 

171 

28'8 

0    4'01     | 

Baden.         Rixdollar, 

W.I    4 

13    2 

16    3    1 

358-1 

4    2 

Bavaria.      Rixdollar  of  1800(1  in  pro), 

W.I    4* 

1A12 

15  13  13 

345'6 

4    0'25 

Copftsuck, 

W.4    3 

4    6* 

.2  16    3 

59-4 

0    8'29 

Bern.            Patagon  or  crown, 

W.  0    7 

1822 

18    7  14 

406'7 

4    8'79 

Piece  of  10  Batzen, 

W.I    2 

5    3 

4  14  17 

102-5 

1    2'31     : 

Bremen.        Piece  of  43  Grotes, 

W.  2    2 

11    0 

8  22    1 

198 

2    3*64 

Brunswick.  Rixdollar,  Convention, 

W.I    3 

18    1 

16    4    4 

359'2 

4    2'15 

Half-rixdollar, 

W.I    3 

9    Oi 

822 

179'6 

2     1-07 

Gulden,  of  J,  fine,  1761, 

B.     0  16 

8  10* 

911 

200-8 

2    4'03 

Gulden,  common,  of  1764, 

W.  1    2 

9    0 

8    2  10 

130 

2    1*13 

71 


Tables  of  Silver  Coins. 


141 


Denomination  of  Coins. 

Assay. 

Weight. 

Standard 
Weight. 

Cont'l* 
in  pan 
Silver. 

Valitr.  in 
Sterling. 

oz.  diet. 

dwt,  gr. 

dwt.  gr.  mi 

grains. 

s.      d. 

Gulden,  ditto,  of  1795, 

W.  2    2 

11     1J 

S  23    7 

199'  1 

2    3'80 

Half-Gulden,  of  J,  of  1764, 

W.I    2 

4  12 

4     1    5 

90 

1    0'56 

Denmark.     Ryksdaler,  specie  of  1798, 

W.013 

18  14 

17  11  17 

388-4 

4    </23 

New  piece  of  4  marks, 

W.  0  12 

12    9 

11  16  14 

259*8 

3    0-27 

Half  ryksdaler, 

W.  0  13 

9    7 

8  17    8 

194-2 

2    3-11 

Mark,  specie,  \  ryksdaler 

W.  3    1 

4    0 

2  21  12 

64*4 

0    7-J9 

Rixd'lr,  Sleswig  &  Hoist  'n 

W.  0  12 

18  13 

17  12    6 

,  389M 

4    6'37 

Piece  of  24  skillings, 

W.4    7 

5    2J 

3    2  10 

68*9 

0    9'62 

England.     Crown  (old), 

Stand. 

19    8J 

19    8  10 

429*7 

5    0 

Half-crown, 

Stand. 

9  16i 

9  16    5 

214-8 

2    6 

Shilling, 

Stand. 

3  21 

3  21    0 

85'9 

1    0 

Sixpence, 

Stand. 

1  22i 

1  22  10 

42'9 

0    6 

Crown  (new), 

Stand. 

18    4J 

18    4    7 

403'6 

4    8-36 

Half-crown, 

Stand. 

9    2 

924 

201-8 

2    4-18 

Shilling, 

Stand. 

3  15} 

3  15    6 

80-7 

0  11-27 

Sixpence, 

Stand. 

1  19} 

1  19  14 

40*3 

0    5-63 

France.        Ecu  of  6  livres, 

W.  0    7 

18  18 

18    7  16 

403-1 

4    8'28 

Demi  ecu, 

W.  0    7 

9    9 

9    1  18 

201-5 

2    4-13 

Piece  of  24  sous, 

W.  0    7 

3  20 

3  16  19 

83-4 

0  1T64 

Piece  of  30  sous, 

W.  3    8 

6  12 

4  12    4 

100-2 

1    1-99 

Fieceof  5  francs,  Convn't. 

W.  o  10} 

16    0 

15    5  14 

338-3 

3  H'24 

Piece  of  5  francs,  of  1808, 

W.  0    7 

16    1 

15  12    4 

344-9 

4    0'16 

Piece  of  2  francs,  of  1SOS, 

W.  0    7 

6  11 

6.  6    2 

138-8 

1    7-38 

Franc  of  1809, 

W.  0    7 

3    5J 

3    3    1 

69*4 

0    9-69 

Demi  franc, 

W.  0    6* 

1  15 

4  13    6 

34-7 

0    4-84 

Franc    (Louis)   of   1818, 

same  as  franc  of  1809. 

Geneva.        Patagon, 

W.i  o 

17    9 

19  19    8 

351 

4    1'03 

Piece  of  15  sous  of  1794, 

W.  2    6 

2    lt 

1  15    1 

36-1 

0    5'04 

Genoa.          Scudo,  of  8  lire,  of  1796, 

W.  0    8 

21    9 

20  14  10 

457-4 

6    3*87 

Scudo  of  Ligurian  Repub.. 

W.  0    9* 

21    9 

20  11    2 

454-3 

o    3-43 

Hamburgh.  Rixdollar,  specie, 

W.  o  10 

18  18 

17  21  12 

397-5 

4    T49 

Double  mark,  32  schillings 

W.  2    3 

11  18 

9  11    8 

210-3 

2    5*36 

Piece  of  8  schillings, 

W.  3  12 

3    Si 

264 

50-1 

0    6'99 

Piece  of  4  schillings, 

W.4    6 

2    2 

1    6  12 

28-3 

0    3-95 

Hanover.     Rixdollar,  Constitution, 

W.  0    9 

18  19 

18    0  14 

400-3 

4    7'89 

Florin,  or  piece  of  J,  fine, 

B.     0  16 

8  10 

9    0  10 

200-3 

2    3'96 

Half-Florin,  ditto.  J,  da, 

B.    0  16 

4    4 

4  11     4 

99-2 

1     1'85 

Quarter,  do.  6groschen,do 

B.     0  16 

2    1 

2    4  10 

48*6 

0    6-78 

Hanover.      Florin,  or  piece  of?,  base, 

W.  2    1 

11    0} 

8  23  15 

199*6 

2    3-67 

Hesse  Cosse/.Rixdollar,  Convention, 

W.I    6 

18    1 

15  22    6 

353 

4    1*39 

Florin,  or  piece  of  j, 

W.I    6 

9    0} 

7  23    3 

176'8 

2    0-68 

Thaler  of  1789, 

W.  o  10* 

12    7i 

11  17    6 

259-7 

3    0*26 

Ecu,  Convention,  (1815), 

W.  1    6 

17  23* 

15  21    2 

349-3 

4    0'77 

Bon  Gros, 

W.  614 

1    4 

0  11    5 

10-3 

0    1-43 

Holland.       Ducatoon, 

B.     0    3 

20  22 

21    4  15 

471-8 

6    5'85 

Piece  of  3  florins, 

W.  0    2 

20    7 

30    2  12 

446*4 

5    2*33    . 

Rixdollars  (the  assay  vary) 

W.  0  16 

18    6 

1620    8 

375-9 

4    4-99 

Half-rixdolbr, 

W.  0  16 

9    0 

888 

186-4 

2     1-69 

Florin  or  guilder(J  in  pro), 

W.  0    4i 

6  IS 

6  14  14 

146-8 

1    8'49 

72 


142 


Money. 


Denomination  of  Coins. 

Assay. 

Weight. 

Standard 
Weight. 

Cont'ts 
in  pun. 
Silver. 

Value  in 
Sterling. 

oz.  dwt. 

diet.gr. 

dwt.gr.mi. 

grains. 

s.      d. 

Holland.       12  Stiver  piece, 

W.  0  16* 

4  12 

4    3  18 

92'4 

1    0-90 

Florin  of  Batavia, 

W.  0     5i 

6  13 

692 

141'6 

1    7-77 

Rixdollar,  50stv'rs,Hoird, 

W.  0    5i 

17    0 

16  13  18 

367'9 

4    3-37 

Lubec.         Rixdollar,  specie, 

W.  0  13 

18  18 

17  15  12 

391-9 

4    6-72 

Double  mark, 

W.  2    3 

11   18 

9  11    8 

210-3 

2    5'36 

Mark, 

W.  2    3 

5  21 

4  17  14 

105'1 

1    2'67 

Lucca.          Scudo, 

W.  0    3 

17    0 

16  13  10 

372-3 

4    3-98 

Barbone, 

W.  3    3 

1  201 

1    7  14 

29-3 

0    4-09 

Malta.           Ounce  of  30  tari, 

W.  2    5 

19    H 

15    4  14 

337-4 

3  11*11 

2  Tari  piece, 

W.  2  19 

1    2 

0  19    2 

17-7 

0    2*47 

Milan.          Scudo  of  6  lire  (J  in  prop.), 

W.  0    7 

14  20J 

14    9  10 

319-6 

3    8'62 

Lira,  new, 

W.  4  10 

4    0 

290 

52'8 

0    7'37 

Lira,  old, 

W.  0    3 

2  10 

294 

52-9 

0    7'38 

Scudo  of  Cisalpine  Repub., 

W.  0    7 

14  21J 

14  10    4 

320-2 

3    8'71 

Piece  of  30  soldi  of  ditto., 

W.  2  18 

4  17 

3  11    8 

77'2 

0  10-78 

Modena.       Scudo  of  15  lire  1739, 

W.  0  14 

18  12J. 

17    8    9 

385-2 

4    6'78 

"     of  5  lire  of  1782, 

W.O    3 

5  19 

5  17    2 

126*8 

1    5-70 

^  "     of  1796, 

W.  3    3 

18    1} 

12  22  12 

287-4 

3    4-13 

Naples.         Ducat,  new  (J  in  prop.), 

W.i  o 

14  15 

13    7    8 

295-4 

3    5'24 

Pieceofl2Carliniofl791, 

W.i  o 

17  15 

16    0  18 

356 

4    1'71 

"    of  1696, 

W.I    2 

17  16J 

15  22  12 

353-9 

4    1*41 

"    of  1805  (i  in  prop.), 

W.I    2 

17  18i 

15  23  18 

355-2 

4     1*60 

"    of  10  Carliui  (1818), 

W.  1    2 

14  18 

13    7    0 

295'1 

3    5-20 

Netherlands.  "Ducaloon,  old, 

B.     0    4 

21    0 

21    9    0 

474-6 

5    6-27 

Ducatoon  of  Maria  Theres. 

W.  014 

21  10 

20    1  12 

445-5 

5    2-20 

Crown  (i  &c.  in  prop), 

W.  014 

19    0 

17  19    4 

395-2 

4    7'18 

5  Stiver  piece, 

W.  6    3 

3    4 

1    9  18 

31'3 

0    4'37 

Florin  of  1790, 

W.  0  14 

5  23J 

5  14    9 

124*3 

1    6'35 

Florin  of  1816, 

W.  0    7i 

6  22 

6  16    6 

148*4 

1    8'72 

Half  florin, 

W.  4    5i 

5  11 

392 

75*0 

0  10-46 

Parma.          Ducat  of  1784, 

W.  0    9 

16  11 

15  18  18 

350'6 

4    0'95 

Ducat  of  1796  (i  in  prop.), 

W.  0    6i 

16  12$ 

16    2  18 

357*9 

4    1'97 

Piece  of  3  lire, 

W.I    4 

4  14 

422 

90*7 

1    0'66 

Piedmont.     Scudo  (1755)  J  Sec.  in  prop. 

W.  0    5J 

22  14 

22    0  10 

488*9 

5    8*26 

Scudo  (1770)  i  &  i  in  prop. 

W.  0    5 

32  14 

22    1  16 

490*0 

5    8*42 

Piece  of  2  lire  (1714), 

W.O    4i 

7  20J 

7  16  13 

170*8 

1  11*85 

5  franc  piece  (1801), 

W.  0    8 

16    1£ 

IS  11  12 

343*7 

3  11*99 

Poland.        Rixdollar,  old, 

W.I    2 

18     1 

16    6    0 

360-8 

4    2*38 

Rixdollar,  new  (1794), 

W.217 

15  10J 

11  11    6 

254*3 

2  11*51 

Florin,  or  gulden, 

W.4    2 

6    0 

3  18  16 

84*0 

0  11*72 

Portugal.     New  Crusado  (1690), 

W.O    4 

11    0 

10  19    0 

239*2 

2    9'40 

(1718), 

W.o    6i 

9    8 

9    1    0 

200*2 

2    3'95 

"           (1795), 

W.o    7 

9    9 

9    1  18 

201*6 

2    4'15 

Doze  vintems,  or  240  rees, 

W.o    7 

4  16 

4  12  10 

100*4 

1    2-01 

Testoon(1799), 

W.o    7 

2    Oi 

1  22  18 

43*4 

0    6'06 

New  crusado  (1809), 

W.o    4 

9    3 

8    23    0 

198*2 

2    4-67 

Seis  vintems,  or  120  rees, 

W.0    9 

2    4* 

228 

46*6 

0    6'50 

Testoon  (1802), 

W.o    9 

2    0 

1  22    0 

42'5 

o  5-93 

Tres  vintems,  or  60  rees, 

W.o    9 

1     2i 

1     1    4 

23'3 

0    3'25 

Half  testoon  (1802), 

W.0    9 

0  23 

0  2-2    0 

20'4 

0    2'84 

73 


Tables  of  Silver  Coins. 


143 


Denomination  of  Coins. 

Assay. 

Weight. 

Standard 
Weight. 

Cont'ts 
in  pure 
Silver. 

Value  in 
Sterling. 

oz.  diet. 

dwt.  gr. 

diet.  gr.  mi. 

grains. 

a.       d. 

Portugueses  Piece  of  8  macutes,  Africa, 

W.O    9 

1  12 

7    4  14 

159-8 

1  10-31 

Colonies.t    "    of6       "           " 

W.O    9 

5  13 

5    7  12 

118-0 

1    4'47 

"    of  4       "           " 

W.O    9 

3  16 

3  12    8 

78'1 

0  10-90 

Prussia.       Rix  dollar,  Prussian  cur  , 

W.2    5 

14    (',} 

11    9    0 

252-6 

2  H'27 

Rixdollar,  Convention, 

W.I    3 

18    1 

16    4    2 

359-0 

4    2-13 

Florin,  or  piece  off, 

W.2    3 

11    2 

8  22    8 

198-4 

3    3'70 

Florin  of  Silesia, 

W.2    2 

9  11 

7  16    0 

170-3 

1  11-78 

Drittel,  or  8  good  groachen, 

W.3    3 

5    8} 

3  20    4 

85*3 

0  11-91 

Piece  of  6  groschen. 

W.2    8 

3  14 

2  19    6 

62-3 

0    8'69 

Rome.           Scudo,  or  crown, 

W.O    4 

17    1 

16  17  13 

371-5 

4    3-87 

Mezzo  scudo  or  half-crown, 

W.O    4 

8  12} 

8    8  16 

185-7 

2    1-93 

Testone  (1785), 

W.O    5 

5    2 

4  23    4 

110-3 

1    3-40 

Paolo  (1785), 

W.O    4 

1  17 

1  16    4 

37'2 

0    5*19 

Grosso  or  half-paolo  (1785), 

W.O    5 

0  20i 

0  20    0 

18-5 

0    2-58 

Scudo  of  the  Roman  Rep., 

W.O    6 

17    1 

16  13  18 

368-1 

4    3-40 

Russia.         Ruble  of  Peter  the  Great, 

W.2    7 

18    1 

14    1    8 

312*1 

3    7-58 

Ditto  of  Catherine  I.(1725), 

W.2    4J 

17  11 

13  23    0 

309-9 

3    7-27 

Ditto  of  Peter  H.  (1727), 

W.2  12 

18    6} 

1323    4 

310'0 

3    7*28 

Ditto  of  Anne  (1734), 

W.I  11 

16  Mi 

14    6  16 

317-2 

3    8-29 

Ditto  of  Elizabeth  (1750), 

W.I    7 

16  12 

14  11  16 

321-8 

3    8*93 

Ditto  of  Peter  III.  (1762), 

W.2    2 

IS  10 

12  12   0 

277*5 

3    2-75 

Ditto  of  Catherine  II.(  1780) 

W.2    4 

IS  12 

12  10    6 

275-9 

8    2-52 

Ditto  of  Paul  (1799), 

W.O  14 

13  12 

12  15  10 

280*8 

3    3'21 

Ditto  of  Alexander  (1802), 

W.O  13 

13    li 

17    7    2 

273-0 

3    2-12 

Ditto  of     ditto.      (1805), 

W.  016 

13  12 

12  12  12 

278-1 

3    2-83 

20  Copeck  piece  (1767), 

W.2    2 

3  10} 

2  19    0 

62*6 

0    8'74 

Ditto  (1784), 

W.2    2 

3    3 

2  12  18 

66-2 

0    7'84 

15  Copeck  piece  (1778), 

W.2    2 

2    6 

1  19  18 

40*5 

0    5'65 

10  Copeck  Piece, 

W.2    6 

2    1 

1  14  16 

35-9 

0    5-11 

Ditto  (1798), 

W.  0  14i 

1    9 

1    6  16 

28-5 

0    3-97 

Ditto  (1802), 

W.O  13 

1    8l 

1    6  11 

28-3 

0    3-95 

5  Copeck  piece  (1801), 

W.  0  13i 

0  16* 

0  15  10 

15-3 

0    2-13 

Sardinia.      Scudo  or  crown  (J  &c.  pro) 

W.O    7 

15    2J 

14  15    0 

324-7 

3    9-34 

Saxony.         Rixdollar,  Convention, 

W.I    3 

18    0 

16    3    4 

358-2 

4    2-01 

Piece  16  groschen,  Leipsic, 

W.2    2 

9    9J 

7    4  16 

169-1 

1  11-61 

Rixdollar  cr'nt  Saxe  Gotha 

W.4    4i 

18    1 

11    4    2 

248-1 

2  10-84 

J  Thaler  of  1804, 

W.  4  11 

3  11 

2    0  19 

4S*3 

0    6'32 

Ditto  of  1808, 

W.4  Hi 

3    5i 

1    21    8 

42-1 

0    5'87 

Ditto  of  Jerome  Bonaparte, 

W.5    4 

3  17 

1  23    6 

43T 

0    6*10 

Sicily.          Scudo  (J  in  proportion), 

W.I    4 

17  14 

15  16    6 

348-2 

4    0'62 

Piece  of  40  grains, 

W.I    2 

6  21 

572 

117-5 

1    4-40 

Spain.          Dollar  of  late  coinage, 

W.O    8 

17    8 

16  17    0 

370*9 

4    3-79 

Half-dollar,  ditto, 

W.O    8 

8  16 

8    8  10 

185'4 

2    1-88 

Mexican  peceta  (1774), 

W.O    8 

4    7i 

4    3  16 

92-3 

1    0-88 

Real  of  Mex'cn  plate(1775) 

W.O    8 

2    3J 

2    1  20 

46-1 

0    6'43 

Peceta  provin'clof  2  reals, 

W.I    9i 

3  18 

360 

72*2 

0  IC'08 

Real  of  new  plate  (1795), 

W.I    9i 

1  21 

1  16    0 

36-1 

0    6-04 

Sweden.        Rixdollar  (1762), 

W.O  12 

18  20 

17  19  10 

895-5 

4    7*22 

Rixdollar  of  late  coinage, 

W.O  14| 

18  17 

17  12    0 

388'5 

4    6*28 

Staitzerland.'Ecii  or  rixdl'r  of  Lucerne, 

W.  0  14j 

17    8i 

16    6    8 

360*1 

4    2*28 

74 


144 


loney. 


Denomination  of  Coins. 

Assay. 

Weight. 

Standard 
Weight. 

Cont'ts 
n  pure 
Silver. 

Value  in 
Sterling. 

oz.  diet. 

dwt.  gr. 

dwt.  gr.  mi. 

grains. 

s.     d. 

Switzerland.  Old  gulden,  Lucerne  (1714) 

W.  119 

8  14} 

728 

157"5 

1    9-99 

Ecu  of  40  batzen,  Lucerne, 

W.O    5 

19    0 

18  13  14 

412-3 

4    9'57 

Half  ditto., 

W.I    2 

9  20 

8  20  12 

196-7 

2    3'46 

Florin,  or  40  schillings, 

W.I     5 

4  22 

4    8  14 

96*8 

1    1-51 

Ecu,  40  batzen,  Helv.  Rep. 

W.O    6 

18  23 

18  10  14 

409-5 

4    9-16 

Ecu  of  4  Franken  (1801), 

W.O    7 

18  23 

18    8  12 

407-6 

4    9-18 

Turkey.        Piastre  of  Selim.  of  1801  , 

W.o  <5 

8    6 

478 

95'7 

1     1'3G 

Piastre  of  Grim  Tartary, 

W.  6  13 

10    5 

424 

90-9 

1    0'69 

Piastre  of  Tunis  (1737), 

W.  6    5} 

10    0 

486 

96-5 

1     1'47 

Piastre  (1818), 

W.  5  14 

6    6} 

314 

67-7 

0    9'45 

Tuscany.      Piece  of  10  paoli  of  Etruria 

W.O    4 

17  13^ 

17    5  18 

382-9 

4    5-46 

Scudo  pisa  of  ditto  (1803), 

W.O    2 

17  12 

17    8    4 

385*0 

4    5'76 

Piece  of  10  lire  ditto  (1303), 

B.     0    7 

25    6 

26    1  12 

S78-7 

6    8'80 

Lira  (1803), 

B.    0    7 

2    8 

2    9  16 

63*4 

0    7-45 

U.  States.     Dollar,  (1795)  }  &c.  in  pro. 

W.O    61 

17    8 

16  19  16 

373-5 

4    4'15 

Dollar  (1798), 

W.O    7 

17  10* 

16  21    6 

874-9 

4    4-35 

Dollar  (1802), 

W.  o  10} 

17  10 

16  14    0 

368*3 

4    3'42 

Dollar,  average  of  8  years, 

W.  o  sj 

17    8 

16  16    0 

370*1 

4    3'68 

Dime  or  l-10th  d'lr.  (1796), 

W.O   4 

1  19} 

1  18  14 

39*5 

0    5'71 

Half  dime  (1796), 

W.  0   7 

0  21* 

0  21    0 

19-5 

0    2*72 

Venice.         Piece  of  2  lire,24  creutzers, 

W.  8   4* 

5  19i 

1  12    2 

33'4 

0    4'66 

Ditto,  moneta  provinciate, 

W.  8   3 

5  13} 

1  11    8 

32-8 

0    4'58 

Ditto  of  2  lire  (1802), 

W.  8   4 

5    61 

1    8  19 

30'5 

0    4'25 

Wirtemb'gh.RixAollar,  specie, 

W.  1   3 

18    1 

16  14    2 

359'1 

4    2*14 

Copftsuck, 

W.  4   2 

4  16} 

2  16  12 

59'8 

0    8'35 

EAST  INDIES. 

East  India.  Rupee  of  Sicca,  by  E.  I.  Co. 

B.     013 

7  ni 

7  22    0 

1758 

2    0'54 

Rupee  of  Calcutta  (181S), 

Stand. 

8     0 

800 

175*9 

2    0'56 

Rupee  of  Bombay  (1818), 

W.  o  oj 

7  11 

7  10    4 

164-7 

1  ll'Ol 

Fanam,  Cananore, 

W.  o  01 

1  11* 

1  11  10 

32'9 

0    4'5 

Fanam,  Bombay,  old, 

B.      013 

111* 

1  13  16 

35-0 

0    4'88 

Fanam,  Pondicherry, 

B.      0    5} 

1    0} 

1     1    2 

22*8 

0    3*18 

Fanam,  ditto,  double, 

W.  0   3 

1  18* 

1  18    2           39'0 

0     5'44 

Gulden,  Dutch  E.  India  Co. 

W.  0   7} 

6  22 

6  16    6 

148*4 

1     8*72 

Amsterdam 

12 

Hamburg 

13 

Paris 

25 

Frankfort 

Vienna 

10 

<3enoa 

25 

Berlin 

G 

Milan 

30 

Leghorn 

30 

Lisbon 

531 

Madrid 

47 

Gibraltar 

48} 

Naples 

39$ 

Palermo 

119} 

COURSE   OF  EXCHANGE, 

London  receives  from  or  gives  to 
3  Florins  arid  Stivers 
12  Mks  ami  SchiU. 
50  Francs  and  Cents 
121  Z.  V.  Florins 
2  Florins  ami  Kreuz. 
35  Lire  and  Centisimi 
25  Dollars  and  Silver  Gro? 
30  Lire  A.  and  Cent. 
50  Lire  Tosc.  and  Cent. 
531  Pence  Sterling  for 


srs                 for 
a                    " 

az.                   " 
imi                   " 
er  Gros.           " 
t.                      " 
Sent.                 " 
1  Milreis. 
1  Peso  of  Exchan; 
1  Hard  Dollar. 
1  Ducat. 
1  Oaza. 

1  £  Sterling. 
1  £  Sterling. 
1  £  Sterling. 
1  £  Sterling. 
1  £  Sterling. 
1  £  Sterling. 
1  £  Sterling. 
1  £  Sterling. 
1  £  Sterling:. 

je. 

ESSAY  ON  PAPER -MONEY  AND  BANKS. 


BY  J.  E.  McCULLOCH. 


PART    FIRST.  — PAPER-MONEY. 


CHAPTER  I. 


UTILITY    OF   PAPER-MONET. 

WE  endeavored  to  explain,  in  the  fifth  chapter  of  the  Essay  on  Money, 
the  reasons  why  paper  has  been  used  as  a  substitute  for  coins  in  the 
ordinary  transactions  of  society,  and  the  principles  on  which  its  value  is 
maintained.  It  is  consequently  unnecessary  to  enter  at  length,  on  this  occa- 
sion, on  either  of  these  subjects ;  but,  to  facilitate  the  understanding  of 
what  is  to  follow,  we  may  shortly  observe,  that  the  employment  of  paper 
as  a  medium  of  exchange  is  an  obvious  means  resorted  to  by  society  for 
saving  expense  and  facilitating  payments. 

An  individual  or  an  association,  in  whose  wealth  and  discretion  the  public 
have  confidence,  issues  promissory  notes,  binding  himself  or  themselves  to  pay 
certain  sums  on  demand,  or  at  some  specified  period  after  the  date  of  the 
notes.  And  it  is  obvious,  that  so  long  as  these  notes  are  punctually  paid 
when  due,  and  are  not  issued  in  excess,  their  circulation,  besides  being  a 
source  of  profit  to  the  issuers,  is  a  great  public  accommodation.  The  weight 
of  1000  sovereigns  exceeds  twenty-one  pounds  troy,  so  that  to  pay  or  re- 
ceive a  large  sum  in  metal,  would  be  exceedingly  inconvenient ;  while  there 
would  be  a  great  risk  from  loss,  as  well  as  a  heavy  expense  incurred  in 
the  conveyance  of  specie  from  place  to  place.  But  with  paper  this  may  be 
effected  with  extreme  facility,  and  payments  of  the  largest  sums,  and  at  the 
greatest  distances,  may  be  made  with  almost  no  inconvenience  or  expense. 
And  while  the  interest  of  individuals  is  thus  consulted  by  the  introduction 
and  use  of  paper,  it  is  of  the  greatest  service  to  the  public.  Its  employ- 


146  Paper-Money. 

ment,  and  the  various  devices  for  the  economizing  of  currency  to  which  it 
has  led,  enable  the  business  of  a  commercial  country  like  England  to  be 
carried  on  with  a  tenth  part,  perhaps,  of  the  gold  and  silver  currency  that 
would  otherwise  be  necessary.  The  cheapest  instruments  by  which  ex- 
changes can  be  effected  are  substituted  in  the  place  of  the  dearest ;  and,  be- 
sides doing  their  work  better,  this  substitution  enables  the  society  to  employ 
the  various  sums  they  must  otherwise  have  employed  as  money,  as  capital 
in  industrious  undertakings,  by  which  the  public  wealth  and  comforts  are 
largely  augmented.  Of  the  various  means,  whether  by  the  introduction  of 
machinery  or  otherwise,  that  have  been  devised  for  promoting  the  progress 
of  wealth  and  civilization,  it  would  not  be  easy  to  point  out  one  better 
calculated  to  attain  its  end  than  the  introduction  of  a  properly  organized 
paper-money. 

Definition  of  Paper-Money. 

But  paper-money,  like  many  other  highly  useful  inventions,  is  liable  to 
great  abuse,  and,  if  not  issued  on  sound  principles,  may  become  the  cause 
of  much  mischief.  By  paper-money,  we  mean  notes  issued  by  individuals 
or  associations  for  certain  sums,  and  made  payable  on  demand,  or  when 
presented.  This  description  of  paper  is  known  in  this  country  by  the  name 
of  bank-paper,  or  bank-notes,  from  its  being  issued  only  by  bankers.  Bills 
of  exchange,  or  bills  issued  by  bankers,  merchants,  or  other  individuals, 
and  payable  some  time  after  date,  perform,  also,  in  some  respects,  the  func- 
tions of  money ;  and  being  transferred  from  individuals,  make  payments 
much  in  the  same  way  as  if  they  consisted  of  bank-notes  for  the  same 
amount. 


Distinction  between  Paper-Money,  or  Bank-Notes,  and  Bills  of  Exchange. 

But  though  there  are  many  points  in  which  a  bill  of  exchange  and  a 
bank-note  closely  resemble  each  other,  there  are  others  in  which  there  is  a 
distinct  and  material  difference  between  them.  A  note  bears  to  be  payable 
on  demand ;  it  is  not  indorsed  by  a  holder  on  his  paying  it  away ;  the 
party  receiving  has  no  claim  on  the  party  from  whom  he  received  it,  in  the 
event  of  the  failure  of  the  issuers.  Practically  speaking,  this  is  the 
fact ;  but  a  person  paying  away  a  bank-note  is  liable  to  be  called  upon  for 
repayment,  should  the  bank  fail  before  it  was  in  the  power  of  the  party  to ' 
whom  it  was  paid,  using  ordinary  diligence,  to  present  it.  The  responsi- 
bility seldom  exceeds  a  couple  of  hours,  and  can  hardly  in  any  case  exceed 
a  couple  of  days.  In  practice,  it  is  never  adverted  to.  And  every  one  is 
thus  encouraged,  reckoning  on  the  facility  of  passing  it  to  another,  to  ac- 
cept bank-paper,  "  even  though  he  should  doubt  the  ultimate  solvency  of  the 
issuers."  (Thornton  on  Paper  Credit,  p.  172.)  Bills,  on  the  contrary,  are 
almost  all  drawn  payable  at  some  distant  period ;  and  those  into  whose  hands 
they  come,  if  they  be  not  in  want  of  money,  prefer  retaining  them  in  their 
possession  in  order  to  get  the  interest  that  accrues  upon  them.  But  the  prin- 
cipal distinction  between  notes  and  bills  is,  that  every  individual,  in  passing 
a  bill  to  another,  has  to  indorse,  it,  and  by  doing  so  makes  himself  responsible 


Utility  of  Paper-Money.  147 

for  its  payment.     "  A  bill  circulates,"  says  Mr.  Thornton,  "  in  consequence 
chiefly  of  the  confidence  placed  by  each  receiver  of  it  in  the  last  indorser, 
his  own  correspondent  in  trade ;  whereas  the  circulation  of  a  bank-note  is 
owing  rather  to  the  circumstance  of  the  name  of  the  issuer  being  so  well 
known  as  to  give  it  an  universal  credit."  (Ibid.,  p.  40.)     Nothing,  then, 
can  be  more  inaccurate  than  to  represent  bills  and  notes  in  the  same  point 
of  view.    If  A  pay  to  B  £100  in  satisfaction  of  a  debt,  there  is  an  end  of 
the  transaction ;  but  if  A  pay  to  B  a  bill  of  exchange  for  £100,  the  trans- 
action is  not  completed  ;  and  in  the  event  of  the  bill  not  being  paid  by  the 
person  on  whom  it  is  drawn,  B  will  have  recourse  upon  A  for  its  value.  It 
is  clear,  therefore,  that  a  great  deal  more  consideration  is  always  required, 
and  may  be  fairly  presumed  to  be  given,  before  any  one  accepts  a  bill  of 
exchange  in  payment,  than  before  he  accepts  a  bank-note.    The  note  is 
payable  on  the  instant,  without  deduction, —  the  bill,  not  until  some  future 
period ;  the  note  may  be  passed  to  another  without  incurring  any  risk  or 
responsibility,  whereas  every  fresh  issuer  of  the  bill  makes  himself  respon- 
sible for  its  value.  Notes  form  the  currency  of  all  classes,  not  only  of  those 
who  are,  but  also  of  those  who  are  not,  engaged  in  business,  as  women, 
children,  laborers,  etc.,  who  in  most  instances  are  without  the  power  to  re- 
fuse them,  and  without  the  means  of  forming  any  correct  conclusion  as  to 
the  solvency  of  the  issuers.     Bills,  on  the  other  hand,  pass  only,  with  very 
few  exceptions,  among  persons  engaged  in  business,  who  are  fully  aware  of 
the  risk  they  run  in  taking  them.     There  is  plainly,  therefore,  a  wide  and 
obvious  distinction  between  the  two  species  of  currency  ;  and  it  cannot  be 
fairly  argued,  that,  because  government  interferes  to  regulate  the  issue  of 
the  one,  it  should  also  regulate  the  issue  of  the  other. 

When,  therefore,  we  speak  of  notes,  or  paper-money,  we  mean  notes 
issued  by  banks,  and  payable  on  demand.  And  unless  when  the  contrary 
is  mentioned,  it  is  to  these  only  that  the  subjoined  statements  apply. 


Regulations  with  respect  to  the  Issue  of  Notes. 

To  obviate  the  endless  inconveniences  that  would  arise  from  the  circula- 
tion of  coins  of  every  weight  and  degree  of  purity,  were  there  no  restric- 
tions on  their  issue,  all  governments  have  forbidden  the  circulation  of  coins 
not  of  a  certain  specified  or  standard  weight  and  fineness.  And  the  recur- 
rence of  similar  inconveniences  from  the  issue  of  notes  for  varying  sums, 
and  payable  under  varying  conditions,  have  led,  in  all  countries  in  which 
paper-money  is  made  use  of,  to  the  enacting  of  regulations  forbidding  the 
issue  of  notes  below  a  certain  amount,  and  laying  down  rules  for  their  pay- 
ment. In  England,  at  this  moment,  no  note  payable  to  bearer  on  demand 
can  be  issued  for  less  than  five  pounds,  and  they  must  all  be  paid  the  mo- 
ment they  are  presented.  In  Scotland  and  Ireland,  the  minimum  value  of 
bank-notes  is  fixed  at  one  pound,  the  regulations  as  to  payment '  being  the 
same  as  in  England.  In  order  to  preserve  the  monopoly  of  the  London 
circulation  to  the  Bank  of  England,  no  notes  payable  to  bearer  on  demand 
are  allowed  to  be  issued  by  individuals  or  associations,  other  than  the  Bank 
of  England,  within  sixty-five  miles  of  St.  Paul's.  But  beyond  these  limits 
every  one  who  complies  with  the  above  regulations,  as  to  the  minimum 


148  Paper-Money. 

amount  of  notes,  and  who  promises  to  pay  them  on  demand,  may,  on  pay- 
ing the  stamp-duty,  and  making  returns  of  the  issues  to  the  stamp-office, 
circulate  any  amount  of  notes  they  can  succeed  in  getting  the  public  to 
take  off. 

Regulations  as  to  the  Issue  of  Notes  Defective. 

We  think  it  might  be  safely  inferred,  even  if  we  wanted  experience  of 
the  actual  working  of  a  currency  so  issued,  that  a  system  like  this  must  un- 
avoidably lead  to  the  greatest  abuse.  The  public  is  very  apt  to  be  deceived, 
in  the  first  instance,  in  giving  confidence  to  or  taking  the  paper  of  an  in- 
dividual or  an  association ;  and  though  that  were  not  the  case,  the  condi- 
tion of  the  individual  or  company  may  subsequently  change  from  bad  or 
expensive  management,  improvident  speculation,  unavoidable  losses,  and 
fifty  other  things  of  which  the  public  can  know  nothing,  or  nothing  certain. 
The  fact  that  any  particular  banker  who  issues  paper  enjoys  the  public 
confidence,  is,  at  best,  a  presumption  merely,  and  no  proof  that  he  really 
deserves  it.  The  public  believes  him  to  be  rich  and  discreet ;  but  this  is 
mere  hypothesis;  the  circumstances  which  excite  confidence  at  the  outset, 
and  which  preserve  it,  are  often  very  deceptive  ;  and  in  the  vast  majority 
of  instances  the  public  has  no  certain  knowledge,  nor  the  means  of  ob- 
taining any,  as  to  the  real  state  of  the  case.  But  it  is  unnecessary  to  argue 
this  point  speculatively.  There  have,  unfortunately,  been  innumerable  in- 
stances in  which  it  has  turned  out  that  bankers  who  had  long  been  in  the 
highest  credit,  and  whose  notes  had  been  unhesitatingly  accepted  by  the 
public,  have  been  found  to  be,  on  the  occurrence  of  anything  to  excite  sus- 
picion, quite  unable  to  meet  their  engagements. 


The  confining    of  tlie  Issue   of  Notes   to   Joint-Stock  Associations   loould  not  give  them 
additional  Security  or  Value. 

It  has  been  supposed  that  the  objections  to  the  issue  of  notes  on  our 
present  system,  because  of  the  risk  of  non-payment,  might  be  obviated  were 
they  issued  only  by  associations  or  joint-stock  companies.  But  it  is  not  easy 
to  see  on  what  principle  leave  should  be  granted  to  fifty  or  sixty  individuals 
to  do  that  which  is  to  be  denied  to  five  or  six.  And  though  this  difficulty  were 
got  over,  the  measure  would  not  have  the  effect  supposed.  A  single  indi- 
vidual may  possess  more  wealth  than  a  number  of  individuals  associated 
together ;  and  the  chances  are,  that  if  he  engage  in  banking,  or  any  other 
business,  that  it  will  be  better  managed  than  by  a  company.  Under  our 
present  system  —  and  in  fact  it  is  impossible  to  prevent  it  under  any  sys- 
tem —  the  partners  in  joint  stocks,  as  in  other  banks,  may  be  men  of  straw, 
or  persons  without  property,  and  unable  to  fulfil  their  engagements.  It  is 
of  the  essence  of  a  secure  and  well-established  paper  currency,  that  the 
notes  of  which  it  consists  should  be  of  the  exact  value  of  the  gold  or  silver 
they  profess  to  represent,  and  that,  consequently,  they  should  be  paid  the 
moment  they  are  presented.  But  it  is  not  enough  to  order  that  this  condi- 
tion shall  be  uniformly  complied  with.  Such  order  is  obeyed  only  by  the 
opulent,  prudent,  and  conscientious  banker,  and  forms  little  or  no  check  on 


Utility  of  Paper-money.  149 

the  proceedings  of  those  of  a  contrary  character.  It  is  the  latter  class, 
however,  that  it  is  especially  necessary  to  look  after  ;  and  it  is  needless  to 
say  that  any  system  that  permits  notes  to  be  issued  without  let  or  hin- 
drance by  speculative,  ignorant,  or  unprincipled  adventurers,  must  be  es- 
sentially vicious. 


Tlie  Issue  of  Notes  affords  great  temptation  to,  and  facilities  far,  the  commission  of  Fraud. 

The  issue  of  notes  is,  of  all  businesses,  that  which  seems  to  hold  out  the 
greatest  prospect  of  success  to  the  schemes  of  those  who  attempt  to  get 
rich  by  preying  on  the  public.  The  cost  of  engraving  and  issuing  notes  is 
but  an  inconsiderable  item  compared  with  the  sums  for  which  they  are 
issued  ;  and  provided  they  be  got  into  anything  like  extensive  circulation, 
they  become  at  once  considerably  productive.  They  are  not  issued,  except, 
as  explained  in  the  Essay  on  Money,  Chapter  V.,  on  the  deposit  of  bills  or 
other  securities,  yielding  a  considerable  rate  of  interest ;  so  that  if  an  in- 
dividual or  set  of  individuals,  with  little  or  no  capital,  contrive,  by  fair 
appearances,  promises,  and  similar  devices,  to  insinuate  himself  or  them- 
selves, into  the  public  confidence,  and  can  maintain  £20,000,  £50,000,  or 
£100,000  in  circulation,  he  or  they  secure  a  good  income  in  the  mean  time  ; 
and  when  the  bubble  bursts,  and  the  imposture  is  detected,  they  are  no 
worse  off  than  when  they  set  up  their  bank.  On  the  contrary,  the  pre- 
sumption is,  that  they  are  a  great  deal  better  off ;  and  that  they  have  taken 
care  to  provide,  at  the  cost  of  the  credulous  and  deceived  public,  a  reserve 
stock  for  their  future  maintenance  ;  hence,  seeing  the  facilities  for  commit- 
ting fraud  are  so  very  great,  the  propriety  or  rather  necessity  of  providing 
against  them. 


Bank-Paper  substantially  Legal  Tender. 

It  has  sometimes  been  contended,  in  vindication  of  our  present  system, 
that  bank-notes  are  essentially  private  paper  ;  that  the  accepting  of  them 
in  payment  is  optional ;  and  that,  as  they  may  be  rejected  by  every  one 
who  either  suspects  or  dislikes  them,  there  is  no  room  or  ground  for  inter- 
fering with  their  issue  !  But  every  body  knows  that,  whatever  notes  may 
be  in  law,  they  are  in  most  parts  of  the  country  practically,  and  in  fact, 
legal  tender.  The  bulk  of  the  people  are  totally  without  power  to  refuse 
them.  The  currency  of  many  extensive  districts  consists  in  great  part  of 
country  notes,  and  such  small  farmers  or  tradesmen  as  should  decline  taking 
them  would  be  exposed  to  the  greatest  inconveniences.  Every  one  makes 
use  of,  or  is  a  dealer  in,  money.  It  is  not  employed  by  men  of  business 
only,  but  by  persons  living  on  fixed  incomes,  women,  laborers,  minors,  and 
in  short,  by  every  class  of  individuals,  very  many  of  whom  are  necessari- 
ly, from  their  situation  in  life,  quite  unable  to  form  any  estimate  of  the 
solidity  of  the  different  banks  whose  paper  is  in  circulation.  Such  parties 
are  uniformly  severe  sufferers  by  the  failure  of  banks.  The  paper  that 
comes  into  their  hands  is  a  part  of  the  currency  or  money  of  the  country, 
and  it  is  quite  as  much  a  part  of  the  duty  of  government  to  take  measures 


150  Paper-Money. 

that  this  paper  shall  be  truly  and  substantially  what  it  professes  to  be, 
as  that  it  should  take  measures  to  prevent  the  issue  of  spurious  coins,  or 
the  use  of  false  or  deficient  weights  and  measures. 


Security  ought  to  be  taken  from  the  Issuers  of  Notes.    . 

Now,  it  will  be  found,  should  the  circulation  of  provincial  notes  be 
allowed  to  continue,  that  there  is  but  one  means  of  making  sure  of  the  sol- 
vency of  the  issuers,  and  of  providing  for  their  being  paid  when  presented  ; 
and  that  is,  by  compelling  all  issuers  of  such  notes  to  give  security  for  their 
payment.  This,  and  this  only,  will  hinder  the  circulation  of  spurious  paper, 
and  afford  a  sufficient  guarantee  that  the  notes  the  public  are  obliged  to 
take  are,  really  and  in  fact,  what  they  profess  to  be.  The  measure,  too,  is 
one  that  might  be  easily  enforced.  To  carry  it  into  effect,  it  would  merely 
be  necessary  to  order  that  all  individuals  or  companies,  on  applying  for 
stamps,  should  be  obliged,  previously  to  their  obtaining  them,  to  lodge  in 
the  hands  of  the  commissioners  an  assignment  to  government,  stock,  mort- 
gages, landed  or  other  fixed  property,  equivalent  to  the  amount  of  the 
stamps  issued  to  them,  to  be  held  in  security  for  their  payment. 

It  has  been  objected  to  this  plan,  that  it  would  be  injurious,  by  locking 
up  a  portion  of  the  capital  of  the  banks ;  but  this  is  plainly  an  error.  Its 
only  effect  in  this  respect  would  be  to  force  such  banks  as  issued  notes  to 
provide  a  supplemental  capital  as  a  security  over  and  above  the  capital  re- 
quired for  conducting  their  business.  But  this  supplemental  capital  would 
not  be  unproductive.  If  it  consisted  of  lands,  the  owners  would  receive 
the  rents  ;  and  if  it  consisted  of  government  securities,  they  would  receive 
the  dividends  or  interest  due  upon  them,  precisely  in  the  same  way  that 
they  are  received  by  other  persons  ;  while  the  fact  being  known  that  they 
possessed  this  supplemental  capital,  or  that  they  had  lodged  security  for 
the  payment  of  their  notes,  would,  by  giving  the  public  perfect  confidence 
in  their  stability,  enable  them  to  conduct  their  business  with  a  less  supply 
of  floating  or  immediately  available  capital  than  would  otherwise  be  nec- 
essary. 

It  is  absurd  to  object  to  this  plan  on  the  ground  of  its  interfering  with 
the  private  pursuits  of  individuals.  It  is  the  duty  of  government  to  inter- 
fere to  regulate  every  business  or  pursuit  that  might  otherwise  become  pub- 
licly injurious.  On  this  principle,  it  interferes  to  prevent  the  circulation 
of  spurious  coins,  and  of  notes  under  a  certain  sum,  and  not  payable  on 
demand ;  and  on  the  same  principle  it  is  called  on  to  interfere  to  prevent 
the  act  ordering  the  payment  of  notes  becoming  again,  as  it  has  very  fre- 
quently done  already,  a  dead  letter,  by  making  sure  that  it  shall  be  com- 
plied with.  The  interference  that  would  take  place  under  the  proposed 
measure  is  not  only  highly  expedient,  but  would  be  of  the  least  vexatious 
kind  imaginable.  All  that  is  required  of  the  persons  applying  for  stamps 
for  notes  is,  that  they  should  deposit  in  the  hands  of  the  commissioners  a 
certain  amount  of  exchequer  bills,  or  other  available  securities,  according 
to  their  demand  for  stamps.  They  are  not  asked  to  state  how  they  mean  to 
dispose  of  these  stamps, —  to  whom  or  in  what  way  they  are  to  be  issued. 
They  are  merely  required  to  give  a  pledge  that  they  shall  be  paid,  or  that 


Utility  of  Paper-Money.  151 

they  shall  not  be  employed  as  so  many  others  have  been,  to  deceive  or  de- 
fraud the  public.  It  is  little  else  than  an  abuse  of  language  to  call  this  an 
interference  with  private  affairs. 

The  taking  of  security  in  the  way  now  suggested,  from  the  issuers  of  notes, 
would  effectually  provide  for  their  payment  when  presented.  Adventurers 
without  capital,  and  sharpers  anxious  to  get  themselves  indebted  to  the 
public,  would  find  that  banking  was  no  longer  a  field  071  which  they  could 
advantageously  enter.  Notes  would  be  made,  in  fact  as  well  as  in  law, 
equivalent  to  the  specie  they  profess  to  represent ;  and  the  paper  currency 
would  acquire  a  solidity  of  which  it  is  at  present  wholly  destitute. 


CHAPTER  IL 

The   exacting  of  Security  from  the  Issuers  of  Paper  would  not  obviate  Fluctuations  in 
its  Amount  and  Value-,  and  would  not,  therefore,  place  the  Currency  on  a  proper  Footing. 

Buc  though  the  plan  of  taking  security  would  completely  obviate  the 
risk  of  loss  from  the  circulation  of  worthless  paper,  or  of  paper  issued  by 
parties  without  the  means,  and  probably  also  the  inclination,  to  pay  it  on 
presentation,  it  would  not  touch  another  abuse  inherent  to  the  present  sys- 
tem, that  is,  it  would  leave  the  currency  exposed,  as  at  present,  to  all  those 
constantly  recurring  fluctuations  in  its  amount  —  those  alternations  of  glut 
and  deficiency  —  by  which  it  has  been  affected  since  provincial  banks  be- 
came considerably  multiplied,  and  which  are  in  the  last  degree  injurious. 
A  paper  currency  is  not  in  a  sound  or  wholesome  state,  unless,  1st,  means 
be  taken  to  insure  that  each  particular  note  or  parcel  of  such  currency  be 
paid  immediately  on  demand ;  and  unless,  2<f,  the  whole  currency  vary  in 
amount  and  value  exactly  as  a  metallic  currency  would  do  were  the  paper 
currency  withdrawn  and  coins  substituted  in  its  stead.  The  last  condition 
is  quite  as  indispensable  to  the  existence  of  a  well-established  currency  as 
the  former ;  and  it  is  one  that  cannot  be  realized  otherwise  than  by  con- 
fining the  issue  of  paper  to  a  single  source 


All  local  Issues  of  Paper-Money  should  be  suppressed. 

It  is  supposed  by  many,  that  there  can  be  no  greater  fluctuations  in  a 
paper  than  in  a  metallic  currency,  provided  the  paper  rest  on  an  undoubted 
basis,  and  be  regularly  paid  the  moment  it  is  presented.  But  this  is 
an  error.  Wherever  there  are  numerous  issuers,  there  may  be,  and  the 
chances  are  fifty  to  one  there  will  be,  perpetually  recurring  fluctuations  in 
the  amount  and  value  of  the  currency.  An  over  issue  of  convertible  pa- 
per is  not,  of  course,  indicated  by  any  difference  between  the  value  of  such 
paper  and  gold  at  home,  but  it  is  indicated  by  a  fall  of  the  exchange,  and 


152  Paper-Money. 

by  an  efflux  of  bullion  to  other  countries.  If  paper  were  only  issued  by 
the  Bank  of  England,  or  some  one  source  in  London,  and  then  only  in  ex- 
change for  bullion,  the  currency  would  be  in  its  most  perfect  state,  and 
would  fluctuate  exactly  as  it  would  do  were  it  wholly  metallic.  But  at 
present  it  is  quite  otherwise.  The  currency  is  supplied  by  hundreds  of 
individuals  and  associations,  all  actuated  by  different,  and  frequently  con- 
flicting views  and  interests. 


Issues  of  Country  Bankers  not  dependent  upon  the  Exchange. 

The  issues  of  the  Bank  of  England,  though  not  always,  are  generally 
governed  by  the  state  of  the  exchange,  or  rather  by  the  influx  and  efflux 
of  bullion ;  increasing  when  it  flows  into,  and  decreasing  when  it  flows  out 
of,  the  country.  But  it  is  quite  otherwise  with  the  provincial  bankers. 
Their  issues  are  not  regulated  by  any  such  standard,  but  by  the  state  of 
credit  and  prices  in  the  districts  in  which  they  happen  to  be  situated.  If 
their  managers  suppose  that  these  are  good  or  improving,  they  rarely  hes- 
itate about  making  additional  issues.  Hence,  when  the  state  of  the  ex- 
change, and  the  demand  on  the  Bank  of  England  for  bullion,  show  that  the 
currency  is  redundant,  and  ought  to  be  contracted,  the  efforts  of  the  bank 
to  effect  its  diminution  are  often  impeded,  and  met  by  a  contrary  action  on 
the  part  of  the  country  banks.  This  is  not  owing  to  the  ignorance  of  the 
latter.  Under  the  supposed  circumstances,  the  country  bankers  see,  speaking 
generally,  that  they  ought  also  to  contract ;  but  being  a  very  numerous 
body,  comprising  several  hundred  establishments,  scattered  over  all  parts 
of  the  country,  each  is  impressed  with  the  well-founded  conviction,  that 
all  that  he  could  do  in  the  way  of  contraction  would  be  next  to  imper- 
ceptible ;  and  no  one  ever  thinks  of  attempting  it,  so  long  as  he  feels  satis- 
fied of  the  stability  of  those  with  whom  he  deals.  On  the  contrary,  every 
banker  knows,  were  he  to  withdraw  a  portion  of  his  notes,  that  some  of  his 
competitors  would  most  likely  embrace  the  opportunity  of  filling  up  the 
vacuum  so  created ;  and  that,  consequently,  he  should  lose  a  portion  of  his 
business,  without  in  any  degree  lessening  the  amount  of  paper  afloat. 
Hence,  in  nineteen  out  of  twenty  instances,  the  country  banks  go  on  in- 
creasing their  aggregate  issues  long  after  the  exchange  has  been  notorious- 
ly against  the  country,  and  the  Bank  of  England  has  been  striving  to 
pull  up. 


Efforts  of  the  Bank  of  England  to  stop  the  Efflux  of  Bullion,  in  1836,  counteracted  ly 

the  Country  Banks. 

The  circumstances  now  stated  were  strikingly  exemplified  in  the  course 
of  1836  and  the  early  part  of  1837.  The  excessive  multiplication  of  joint- 
stock  banks  in  1836,  the  great  additions  they  made  to  the  number  of  notes 
afloat,  and  the  still  greater  additions  they  made  to  the  number  of  bills, 
checks,  and  other  substitutes  for  money,  occasioned  a  redundancy  of  the 
currency,  a  fall  of  the  exchange,  and  a  drain  upon  the  Bank  of  England 
for  gold.  But  while  the  latter  was  narrowing  her  issues  by  supplying  the 


Utility  of  Paper-Money.  153 

exporters  of  bullion  with  gold  in  exchange  for  notes,  the  country  banks 
went  on  increasing  their  issues.  What  the  former  did  by  contracting  on 
the  one  hand,  the  latter  more  than  undid  by  letting  out  on  the  other.  The 
vacuum  created  by  the  withdrawal  of  Bank  of  England  paper  was  imme- 
diately filled  up,  and  made  to  overflow,  by  the  issue  of  a  more  than  equal 
amount  of  provincial  paper  ;  so  that  had  it  not  been  for  the  rise  in  the  rate 
of  interest,  and  the  other  repressive  measures  adopted  by  the  Bank,  the 
probability  is  that  she  might  have  gone  on  paying  away  bullion  fo$  notes 
till  she  was  drained  of  her  last  sixpence  without  in  any  degree  affecting 
the  exchange.  But  this  is  not  all.  Not  only  do  the  country  banks  almost 
universally  increase  their  issues  when  they  ought  to  be  diminished,  but  the 
moment  they  are  compelled  to  set  about  their  reduction,  they  run  headlong 
into  the  opposite  extreme,  and  unreasonable  suspicion  takes  the  place  of 
blind,  unthinking  confidence.  The  cry  of  sauve  qui  pent  then  becomes  all 
but  universal.  It  is  seldom  that  a  recoil  takes  place  without  destroying 
more  or  fewer  of  the  provincial  banks ;  and  provided  the  others  succeed  in 
securing  themselves,  little  attention  is  usually  paid  to  the  interests  of  those 
they  have  taught  to  look  to  them  for  help.  It  may  be  worth  while,  in  order 
to  exhibit  the  truth  of  what  has  now  been  stated,  shortly  to  advert  to  the 
destruction  of  country-bank  paper  in  1792-93,  1814,  1815,  and  1816, 
1825-26,  and  more  recently  in  1836-37. 


Destruction  of  Country  Banks  and  Paper  in  1792-93. 

1.  Previously  to  1759,  the  Bank  of  England  did  not  issue  any  notes  for 
less  than  £20 ;  but  having  then  commenced  the  issue  of  £10  notes,  her  paper 
was  gradually  introduced  into  a  wider  circle,  and  the  public  became  more 
habituated  to  its  employment  in  their  ordinary  transactions.  The  distress  and 
embarrassment  that  grew  out  of  the  American  war  proved  exceedingly 
unfavorable  to  the  formation  of  country  banks,  or  of  any  establishments 
requiring  unusual  credit  and  confidence.  No  sooner,  however,  had  peace 
been  concluded,  than  everything  assumed  a  new  face.  The  agriculture, 
commerce,  and  still  more,  the  manufactures  of  the  country,  into  which  Watt 
and  Arkwright's  inventions  had  been  lately  introduced,  immediately  began 
to  advance  with  a  rapidity  unknown  at  any  former  period.  In  consequence, 
that  confidence  which  had  either  been  destroyed  or  very  much  weakened 
by  the  disastrous  events  of  the  war  was  fully  reestablished.  The  ex- 
tende'd  transactions  of  the  country  required  fresh  facilities  for  carrying 
them  on  ;  and  a  bank  was  erected  in  every  market-town,  and  almost  in 
every  village.  The  prudence,  capital,  and  connections  of  those  who  set  up 
these  establishments  were  but  little  attended  to.  The  great  object  of  a  large 
class  of  traders  was  to  obtain  discounts ;  and  the  bankers  of  an  inferior 
description  were  equally  anxious  to  accommodate  them.  All  sorts  of  paper 
were  thus  forced  into  circulation,  and  enjoyed  nearly  the  same  degree  of 
esteem.  The  bankers,  and  those  with  whom  they  dealt,  had  the  fullest 
confidence  in  each  other.  No  one  seemed  to  suspect  that  there  was  any- 
thing hollow  or  unsound  in  the  system.  Credit  of  every  kind  was  strained 
to  the  utmost ;  and  the  available  funds  at  the  disposal  of  the  bankers  were 
reduced  far  below  the  level  which  the  magnitude  of  their  transactions  re- 
quired to  render  them  secure. 


154  Paper-Money. 

The  catastrophe  which  followed  was  such  as  might  easily  have  been  fore 
seen.  The  currency  having  become  redundant,  the  exchanges  took  an  unfa 
vorable  turn  in  the  early  part  of  1792  ;  a  difficulty  of  obtaining  pecuniar} 
accommodation  in  London  was  not  long  after  experienced  ;  and  notwithstand- 
ing the  efforts  of  the  Bank  of  England  to  mitigate  the  pressure,  a  violent  re- 
vulsion took  place  in  the  latter  part  of  1792  and  the  beginning  of  1793.  The 
failure  of  one  or  two  great  houses  excited  a  panic  which  proved  fatal  to 
many  more.  When  this  revulsion  began,  there  were  about  three  hundred 
and  fifty  country  banks  in  England  and  Wales  of  which  about  a  hundred 
were  compelled  to  stop  payments,  and  upwards  of  fifty  were  totally  de- 
stroyed, producing  by  their  fall  an  extent  of  misery  and  bankruptcy  till 
then  unknown  in  England. 

"  In  the  general  distress  and  dismay,  every  one  looked  upon  his  neighbor 
with  caution,  if  not  with  suspicion.  It  was  impossible  to  raise  money  upon 
the  security  of  machinery,  or  shares  of  canals  ;  for  the  value  of  such  prop- 
erty seemed  to  be  annihilated  in  the  gloomy  apprehension  of  the  sinking 
state  of  the  country,  its  commerce  and  manufactures ;  and  those  who  had 
any  money,  not  knowing  where  they  could  place  it  with  safety,  kept  it  un- 
employed and  locked  up  in  their  coffers.  Amid  the  general  calamity,  the 
country  banks,  which  had  multiplied  greatly  beyond  the  demand  of  the 
country  for  circulating  paper  currency,  and  whose  eagerness  to  push  their 
notes  into  circulation  had  laid  the  foundation  of  their  own  misfortunes, 
were  among  the  greatest  sufferers,  and,  consequently,  among  the  greatest 
spreaders  of  ruin  and  distress  among  those  connected  with  them  ;  and  they 
were  also  the  chief  cause  of  the  drain  of  cash  from  the  Bank  of  England, 
exceeding  any  demand  of  the  kind  for  about  ten  years  back.  Of  these  banks 
above  a  hundred  failed,  whereof  there  were  twelve  in  Yorkshire,  seven  in 
Northumberland,  seven  in  Lincolnshire,  six  in  Sussex,  five  in  Lancashire, 
four  in  Northamptonshire,  four  in  Somersetshire,  etc."  (Macpherson's  An- 
nals of  Commerce,  vol.  iv.  p.  266.) 

Attempts  have  sometimes  been  made  to  show  that  this  crisis  was  not  oc- 
casioned by  an  excess  of  paper-money  having  been  forced  into  circulation, 
but  by  the  agitation  caused  by  the  war  then  on  the  eve  of  breaking  out. 
But  there  do  not  seem  to  be  any  good  grounds  for  this  opinion.  The  un- 
erring symptoms  of  an  overflow  of  paper,  a  fall  of  the  exchange,  and  an 
efflux  of  bullion,  took  place  early  in  1792,  or  about  twelve  months  before 
the  breaking  out  of  hostilities.  Mr.  Chalmers  states,  that  none  of  the 
great  houses  that  failed  during  this  crisis  had  sustained  any  damage  from 
the  war.  The  efforts  of  the  country  bankers  to  force  their  paper  into  cir- 
culation occasioned  the  redundancy  of  the  currency,  and  it  was  on  them, 
and  on  the  country  dealers  and  farmers  dependent  on  them,  that  the  storm 
principally  fell.  (Comparative  Estimate,  p.  226,  ed.  1812.)  It  is  of  im- 
portance to  remark,  that  the  Bank  of  England  had  no  notes  for  less  than 
£10  and  the  country  banks  for  less  than  £5  in  circulation,  when  the  crisis 
of  1792-93  took  place. 

2.  During  the  period  from  1800  to  1813,  the  number  of  country  banks 
had  increased  from  about  400  to  922  ;  and  in  consequence  partly  of  this 
rapid  increase,  and  partly  of  the  suspension  of  cash  payments  at  the  Bank 
of  England,  in  1797,  and  the  issue  of  one-pound  notes  by  that  establish- 
lishment  and  the  country  banks,  the  amount  of  paper  afloat  was  vastly  in- 


Utility  of  Paper-Money.  155 

creased,  particularly  after  1808,  when  it  sunk  to  a  heavy  discount  as  com- 
pared with  bullion.  Mr.  Wakefield,  whose  extensive  employment  in  the 
management  of  estates  in  all  parts  of  the  country  gave  him  the  most  fa- 
vorable opportunities  for  acquiring  correct  information,  stated  to  the  agri- 
cultural committee  of  1821,  that  "  down  to  the  year  1813,  there  were  banks 
in  almost  all  parts  of  England,  forcing  their  paper  into  circulation  at  an 
enormous  expense  to  themselves,  and  in  most  instances  to  their  own  ruin. 
There  were  bankers  who  gave  commission,  and  who  sent  persons  to  the 
markets  to  take  up  the  notes  of  other  banks  ;  these  people  were  called 
money-changers,  and  commission  was  paid  them."  (Report,  p.  213.)  And 
among  the  various  answers  to  the  queries  sent  by  the  Board  of  Agricul- 
ture, in  1816,  to  the  most  intelligent  persons  in  different  parts  of  the  coun- 
try, there  is  hardly  one  in  which  the  excessive  issue  of  country-bank  paper 
is  not  particularly  specified  as  one  of  the  main  causes  of  the  unprecedented 
rise  of  rents  and  prices  previously  to  1814. 


Destruction  of  Country  Banks  and  Paper  in  1814,  1815,  and  1816. 

Influenced  partly  by  this  extraordinary  increase  of  paper,  and  partly  by 
deficient  harvests  and  the  exclusion  of  foreign  supplies,  the  price  of  corn 
rose  to  an  exorbitant  height  during  the  five  years  ending  with  1813.  But, 
owing  partly  to  the  luxuriant  crop  of  that  year,  and  partly  and  chiefly, 
perhaps,  to  the  opening  of  the  Dutch  ports,  and  the  renewed  intercourse 
with  the  Continent,  prices  sustained  a  very  heavy  fall  in  the  latter  part  of 
1813  and  the  beginning  of  1814.  And  this  fall,  having  produced  a  want 
of  confidence  and  an  alarm  among  the  country  bankers  and  their  customers, 
occasioned  such  a  destruction  of  country-bank  paper  as  has  not  been  paralleled 
except  by  the  revulsion  of  1825-26.  In  1814, 1815,  and  1816,  no  fewer  than 
240  country  banks  stopped  payment,  and  eighty-nine  commissions  of  bank- 
ruptcy were  issued  against  these  establishments,  being  at  the  rate  of  one 
commission  against  every  ten  and  a  half  of  the  total  number  of  banks 
licensed  in  1813  !  This  destruction  of  bank  paper  is  said  to  have  produced 
an  extent  of  wretchedness  and  misery  never  equalled  in  any  European 
country  by  any  similar  catastrophe,  except,  perhaps,  by  the  breaking  up 
of  the  Mississippi  scheme  in  France. 


Destruction  of  Country  Banks  and  Paper  in  1825-26. 

3.  The  destruction  of  country  paper  during  the  period  now  referred  to, 
by  reducing  the  amount  of  the  currency,  raised  its  value  in  1816  nearly  to 
a  par  with  the  value  of  bullion,  and  enabled  measures  to  be  taken  for  re- 
verting to  cash  payments  at  the  Bank  of  England,  which  was  effected  by 
the  act  59  Geo.  III.  cap.  78.  But  notwithstanding  the  ample  experience 
that  had  been  supplied  by  the  occurrences  of  1792-93  and  1814-16,  of  the 
mischievous  consequences  of  the  issue  of  paper  by  the  country  banks,  and 
of  their  want  of  solidity,  nothing  whatever  was  done,  when  provision  was 
made  for  returning  to  specie  payments,  to  restrain  their  issues,  or  to  place 
them  on  a  better  footing.  The  consequences  of  such  improvidence  were  not 


156  Paper-Money. 

long  in  manifesting  themselves.  The  prices  of  corn  and  other  agricultural 
products,  which  had  been  greatly  depressed  in  consequence  of  abundant  har- 
vests, in  1820,  1821,  and  1822,  rallied  in  1823 ;  and  the  country  bankers, 
true  to  their  invariable  practice  on  similar  occasions,  immediately  began  to 
enlarge  their  issues.  It  is  unnecessary  to  inquire  into  the  circumstances  which 
conspired  along  with  the  rise  of  prices,  to  promote  the  extraordinary  rage 
for  speculation  exhibited  in  1824  and  1825.  It  is  sufficient  to  observe,  that, 
in  consequence  of  their  operation,  confidence  was  very  soon  carried  to  the 
greatest  height.  It  did  not  seem  to  be  supposed  that  any  scheme  could  be 
hazardous,  much  less  wild  or  extravagant.  The  infatuation  was  such,  that 
even  the  most  considerate  persons  did  not  scruple  to  embark  in  the  most 
visionary  and  absurd  projects  ;  while  the  extreme  facility  with  which  dis- 
counts were  procured  upon  bills  at  very  long  dates,  afforded  the  means  of 
carrying  on  every  sort  of  undertaking.  The  most  worthless  paper  was 
readily  negotiated.  Many  of  the  country  bankers  seemed,  indeed,  to  have 
no  object  other  than  to  get  themselves  indebted  to  the  public.  And  such 
was  the  vigor  and  success  of  their  efforts  to  force  their  paper  into  circula- 
tion, that  the  amount  of  it  afloat  in  1825  is  estimated  to  have  been  nearly 
fifty  per  cent,  greater  than  in  1823. 

The  consequences  of  this  extravagant  and  unprincipled  conduct  are  well 
known.  The  currency  having  become  redundant,  the  exchange  began  to 
decline  in  the  summer  of  1824.  But  the  directors  of  the  Bank  of  England 
having  entered,  in  the  early  part  of  that  year,  into  an  engagement  with  the 
government  to  pay  off  such  holders  of  four  per  cent,  stock  as  might  dissent 
from  its  conversion  into  a  three  and  a  half  per  cent,  stock,  were  obliged  to 
advance  a  considerable  sum  on  this  account  after  the  depression  of  the  ex- 
change. This  tended  to  counteract  the  effect  of  the  drain  on  the  Bank 
for  gold,  and  in  consequence,  the  London  currency  was  not  very  materially 
diminished  till  September,  1825.  This  reduction  was  accompanied  by  a 
repetition  of  the  events  of  1793,  but  on  a  larger  and  more  magnificent 
scale,  and  with  more  destructive  consequences.  The  country  banks  began  to 
give  way  the  moment  they  experienced  a  considerably  increased  difficulty  of 
obtaining  accommodation  in  London,  and  all  confidence  and  credit  were  im- 
mediately at  an  end.  Suspicion  having  awakened  from  her  trance,  there 
were  no  limits  to  the  run.  Paper  was  not  carried  to  the  banks  to  obtain 
gold,  in  the  view  of  exporting  it  as  a  mercantile  adventure  to  the  Conti- 
nent, but  for  the  purpose  of  escaping  the  loss  which  it  became  obvious  a 
large  portion  of  the  holders  of  country  notes  would  have  to  sustain.  The 
destruction  of  country  paper  was  so  sudden  and  extensive,  that  in  less  than 
six  weeks  above  seventy  banking  establishments  were  swept  off,  and  a 
vacuum  was  created  in  the  currency  which  absorbed  from  eight  to  ten 
millions  of  additional  issues  by  the  Bank  of  England ;  at  the  same  time 
that  myriads  of  those  private  bills  that  had  previously  swelled  the  amount 
of  the  currency,  and  added  to  the  machinery  of  speculation,  were  wholly 
destroyed. 

Measures  for  establishing  Joint-Stock  Banks  in  1826.     Inadequacy  of  these  Measures. 

4.  Notwithstanding  nations  are  proverbially  slow  and  reluctant  learners, 
the  events  of  1825-26,  taken  in  connection  with  those  of  the  same  sort 


Utility  of  Paper-Money.  157 

that  had  previously  occurred,  produced  a  conviction  of  the  necessity  of 
taking  some  steps  to  improve  the  system  of  country  banking  in  England. 
But  we  regret  to  have  to  add,  that  the  measures  adopted  in  this  view  were 
very  far  indeed  from  being  effectual  to  their  object.  In  1708,  a  law  had  been 
passed  limiting  the  number  of  partners  in  banking  establishments  to  six. 
This  law  was  now  repealed  ;  and  it  was  enacted  that  banks  with  any  num- 
ber of  partners  might  be  established  for  the  issue  of  notes  anywhere  be- 
yond sixty-five  miles  from  London  ;  and  that  banks  not  issuing  notes  might 
be  established  in  London  itself  with  any  number  of  partners.  The  circu- 
lation of  notes  for  less  than  five  pounds  in  England  and  Wales  was  at  the 
same  time  forbidden. 

Much  benefit  was  expected,  but  without  any  sufficient  reason,  to  arise 
from  these  measures.  So  long  as  every  one  is  allowed  to  issue  notes  with- 
out check  or  control,  a  thousand  devices  may  be  fallen  upon  to  insure  the 
circulation  of  those  that  are  most  worthless.  Besides,  there  is  no  founda- 
tion whatever  for  the  supposition,  that  the  mere  fact  of  a  bank  consisting 
of  fifty  or  a  hundred,  instead  of  five  or  ten  partners,  renders  it  more  worthy 
of  confidence,  or  is  any  security  that  it  will  be  better  managed.  The  prob- 
ability seems,  in  fact,  to  be  rather  the  other  way.  A  few  wealthy  individu- 
als engaged  in  banking,  or  any  other  sort  of  business,  must,  if  they  would 
protect  themselves  from  ruin,  pay  unremitting  attention  to  their  concerns, 
and  act  in  a  discreet  and  cautious  manner.  But  the  partners  and  managers 
of  a  great  joint-stock  company  act  under  no  such  direct  and  pressing  re- 
sponsibility. The  former,  indeed,  seldom  take  the  trouble  to  inquire  care- 
fully into  the  business  of  the  company ;  and  the  responsibility  of  their 
managers  is  of  a  very  different  kind  from  that  of  an  opulent  individual 
whose  fortune  is  answerable  for  every  error  and  false  step  he  may  commit. 
The  recent  history  of  the  Northern  and  Central  Joint-Stock  Bank,  and  of 
various  other  associations,  sufficiently  establishes  the  truth  of  what  has 
now  been  stated.  The  fact  that  there  is  a  number  of  partners  in  a  joint- 
stock  bank,  and  the  consequent  notion,  that  though  its  affairs  were  to  get 
into  disorder,  some  of  them  would  be  able  to  make  good  the  claims  upon 
it,  tends  to  procure  a  circulation  for  the  notes  of  these  establishments  to 
which  they  may  be  very  little  entitled.  They  in  truth  afford  very  great 
facilities  for  the  perpetrating  of  fraud  both  upon  the  partners  and  the  pub- 
lic. And  even  when  best  managed,  and  resting  on  an  impregnable  founda- 
tion, they  may  and  do  issue  in  excess  ;  and  thus  produce  those  fluctuations 
in  the  amount  and  value  of  the  currency  that  are  everywhere  most  disas- 
trous, but  especially  in  a  commercial  country. 

The  prohibition  of  the  issue  of  one-pound  notes  has  gone  far  to  shut  up 
one  of  the  most  convenient  channels  by  which  the  inferior  class  of  country 
bankers  formerly  contrived  to  get  their  notes  into  circulation  ;  but  there  are 
many  other  channels  still  open  to  them,  and  of  these  they  have  not  failed 
to  avail  themselves.  We  have  already  seen  that  there  were  no  notes  for 
less  than  five  pounds  in  circulation  in  1792-93,  and  yet  fully  a  third  part  of 
the  country  banks  then  in  existence  stopped  payments.  This  is  enough  to 
show  how  little  security  can  be  expected  from  this  limitation. 


158  Paper-Money. 


Progress  of  the  Joint-Stock  System. 

Those  who  supposed  that  joint-stock  banks  would  be  immediately  set  on 
foot  in  all  parts  of  England,  were  a  good  deal  disappointed  with  the  slow- 
ness with  which  they  spread  for  some  years  after  the  act  permitting  their 
establishment  was  passed.  The  heavy  losses  occasioned  by  the  downfall 
of  most  of  the  joint-stock  projects  set  on  foot  in  1824  and  1825,  made  all 
projects  of  the  same  kind  be  looked  upon  for  a  considerable  period  with 
suspicion,  and  deterred  most  persons  from  embarking  in  them.  But  this 
prejudice  gradually  wore  off;  and  the  increasing  prosperity  of  the  country, 
and  the  difficulty  of  vesting  money  so  as  to  obtain  from  it  a  reasonable  re- 
turn, generated  a  new  disposition  to  adventure  in  hazardous  projects.  A 
mania  for  embarking  in  speculative  schemes  acquired  considerable  strength 
in  1835,  and  during  the  first  six  months  of  1836  it  raged  with  a  violence 
but  little  inferior  to  that  of  1825.  It  was  at  first  principally  directed  to  rail- 
road projects  ;  but  it  soon  began  to  embrace  all  sorts  of  schemes,  and  among 
others,  joint-stock  banks,  of  which  an  unprecedented  number  were  pro- 
jected in  the  course  of  the  year.  The  progress  of  the  system  has  been 
as  follows :  — 

Banks.  Banks. 
In  1826,  there  were  regis-  In  1832,  there  were  regis- 
tered  3           tered 7 

In  1827 4    In  1833 9 

In  1828 0  In  1834 10 

In  1829 7  In  1835 9 

In  1830 1    In  1836 45 

In  1831 9 

Total 104 

In  point  of  fact,  however,  the  number  of  banks  created  in  1836  was 
vastly  greater  than  appears  from  this  statement.  We  believe  that,  at  an 
average,  each  of  the  forty-five  banks  established  in  that  year,  like  those 
previously  established,  has  from  five  to  six  branches ;  and  as  these 
branches  transact  all  sorts  of  banking  business,  and  enjoy  the  same 
credit  as  the  parent  establishment,  from  which  they  are  frequently  a  great 
distance,  they  are,  to  all  intents  and  purposes,  so  many  new  banks  ;  so  that, 
instead  of  forty-five,  it  may  safely  be  affirmed  that  about  two  hundred  new 
joint-stock  banks  were  opened  in  England  and  Wales  in  1836,  and  mostly 
in  the  first  six  months  of  that  year  i 


Over  Issue  by  ilae,  Joint- Stock  Banks  in  1836. 

In  January,  February,  and  March,  1836,  when  the  rage  for  establishing 
joint-stock  banks  was  at  its  height,  the  exchange  was  either  at  par,  or  but 
slightly  in  our  favor,  showing  that  the  currency  was  already  up  to  its  level, 
and  that  if  any  considerable  additions  were  made  to  it,  the  exchange  would 
be  depressed,  and  a  drain  for  bullion  be  experienced.  But  these  circum- 
stances, if  ever  they  occurred  to  the  managers  of  the  joint-stock  banks,  do 


Utility  of  Paper- Money.  159 

not  seem  to  have  had,  and  could  not  in  truth  be  expected  to  have,  the  least 
influence  over  their  proceedings.  Their  issues,  which  amounted  on  the 
26th  of  December,  1835,  to  £2,799,551,  amounted  on  the  25th  of  June  to 
£3,588,064,  exclusive  of  the  vast  mass  of  additional  bills,  checks,  and  other 
substitutes  for  money  they  had  put  into  circulation.  The  consequences 
were  such  as  every  man  of  sense  must  have  foreseen.  In  April,  1836,  the 
exchange  became  unfavorable,  and  bullion  began  to  be  demanded  from  the 
Bank  of  England.  The  latter,  that  she  might  the  better  meet  the  drain, 
raised  the  rate  of  interest  in  June  from  four  to  four  and  a  half  per  cent., 
and  this  not  being  sufficient  to  lessen  the  pressure  on  her  for  discounts,  she 
raised  it  in  August  from  four  and  a  half  to  five  per  cent.  But  during  the 
whole  of  this  period,  the  country  banks  went  on  increasing  their  issues. 
We  have  already  seen  that,  on  the  25th  of  June,  1836,  their  issues,  were 
£788,513  greater  than  they  had  been  on  the  preceding  26th  of  December; 
and  notwithstanding  the  continued  drain  for  bullion,  and  the  rise  in  the  rate 
of  interest  by  the  Bank  of  England  in  June  and  August,  and  the  reduc- 
tion of  her  issues,  the  issues  of  the  joint-stock  banks  increased  from 
£3,588,064  in  June,  to  no  less  than  £4,258,197  on  the  31st  of  Decem- 
ber, being  an  increase  of  nearly  twenty  per  cent,  after  the  exchange 
was  notoriously  against  the  country ;  and  the  most  serious  consequences 
were  apprehended  from  the  continued  drain  for  bullion  on  the  Bank  of 
England ! 

It  may,  perhaps,  be  imagined  that  the  increased  issue  of  the  joint-stock 
banks  would  be  balanced  by  a  corresponding  diminution  of  the  issues  of 
the  private  banks,  and  that,  on  the  whole,  the  amount  of  their  joint  issues 
might  not  be  increased.  This,  however,  was  not  the  case.  Some  private 
banks  were  abandoned  in  1836,  and  others  incorporated  with  joint-stock 
banks  ;  and  it  is  further  true,  that  those  which  went  on  managed  their 
affairs  with  more  discretion  than  their  associated  competitors.  But,  from 
the  26th  of  September,  1835,  to  the  31st  of  December,  1836,  the  issues  of 
the  private  banks  were  diminished  only  £159,087,  whilst  those  of  the  joint- 
stocks  were  increased  during  the  same  period  £1,750,160,  or  more  than 
ten  times  the  falling  off  in  the  others. 


Reasons  why  there  should  be  only  one  Issuer  of  Paper-Money. 

These  statements  show  conclusively  the  extreme  inexpediency  of  having 
more  than  one  issuer  of  paper.  Its  issue  ought  in  all  cases  to  be  govern- 
ed exclusively  by  the  state  of  the  exchange,  or  rather,  as  already  stated, 
by  the  influx  and  efflux  of  bullion.  But  the  provincial  banks  may  go  on 
over-issuing  for  a  lengthened  period  without  being  affected  by  a  demand 
for  bullion,  or  even  for  Bank  of  England  paper.  A  drain  for  bullion  al- 
ways operates  in  the  first  instance  on  the  Bank  of  England ;  and  were  she 
the  sole  issuer,  she  might  always  check  the  drain  at  the  outset,  by  narrow- 
ing her  issues,  or  by  ceasing  to  replace  the  notes  brought  to  her  in  exchange 
for  bullion.  But  the  country  banks,  not  being  immediately  or  speedily 
affected  by  the  drain,  take  no  steps  to  get  rid  of  that  redundancy  of  the 
currency  by  which  it  is  occasioned ;  and,  provided  their  credit  be  good, 
they  may  and  do  frequently  go  on  for  a  lengthened  period  adding  to  their 


160  Paper-Money. 

issues,  and  aggravating  all  the  bad  symptoms  in  the  state  of  the  currency. 
Thus  we  have  seen  the  joint-stock  banks,  in  the  early  part  of  1836,  making 
large  additions  to  their  issues  when  the  currency  was  already  quite  full ; 
and,  not  stopping  there,  we  have  next  seen  them  persisting,  for  more  than 
six  months,  in  increasing  their  issues  in  the  teeth  of  a  heavy  and  continued 
drain  for  bullion,  a  rapid  rise  in  the  rate  of  interest,  and  great  apprehen- 
sions in  the  public  mind.  This  conduct  has  nothing  to  do  with  the  solidity 
of  the  banks.  There  is  no  reason  whatever  to  think,  supposing  they  had 
all  given  security  for  their  issues,  they  would  have  been  in  any  degree 
diminished.  On  the  contrary,  the  probability  is,  that  by  putting  an  end  to 
every  doubt  as  to  their  stability,  it  would  have  materially  facilitated  their 
issues,  and  tempted  them  to  increase  them  to  a  still  greater  extent. 

But,  in  the  end,  an  efflux  of  bullion  is  sure,  by  rendering  money  and  all 
sorts  of  pecuniary  accommodation  scarce  in  the  metropolis,  to  affect  the 
country  banks  as  well  as  the  Bank  of  England ;  and  then  the  shock  given, 
to  industry,  and  the  derangement  of  prices  and  transactions  of  all  sorts,  is 
severe  in  proportion  to  the  previous  over-issue.  A  revulsion  of  this  sort 
seldom  occurs  without  destroying  some  of  the  provincial  banks,  and  exciting 
a  panic,  as  was  the  case  in  1792-93,  and  in  1825-26.  But  even  when  this 
is  not  the  case,  the  check  given  to  the  practice  of  discounting,  and  the 
withdrawal  of  their  accustomed  accommodations  from  vast  numbers  of  in- 
individuals,  necessarily  occasion  a  great  deal  of  inconvenience  and  distress. 
The  Bank  of  England,  by  bolstering  up  the  Northern  and  Central  Bank 
in  November,  1836,  averted  the  bankruptcy  of  that  establishment,  which 
had  no  fewer  thsmforty  branches,  and  by  doing  so  prevented  the  occurrence 
of  a  panic,  and  a  run  that  would  most  likely  have  proved  fatal  to  many 
other  joint-stock  and  private  banks.  Still,  however,  the  shock  given  to  all 
sorts  of  industrious  undertakings,  by  the  revulsion  in  the  latter  part  of 
1B36,  although  unaccompanied  with  any  panic,  was  very  severe.  All  sorts 
of  commercial  speculations  were  for  a  while  completely  paralyzed,  and 
there  were  but  few  districts  in  which  great  numbers  of  individuals  were 
not  thrown  out  of  employment.  In  Paisley,  Birmingham,  and  various 
other  towns,  the  distress  occasioned  by  the  revulsion  was  very  general  and 
long-continued.  The  following  memorial,  subscribed  by  all  the  leading 
manufacturers,  merchants,  and  traders  of  Birmingham,  was  presented  to 
Lord  Melbourne  in  March,  1837.  It  sets  the  disastrous  influence  of  fluc- 
tuations in  the  amount  and  value  of  the  currency  in  a  very  striking  light. 

"  My  Lord :  We,  the  undersigned,  merchants,  manufacturers,  and 
other  inhabitants  of  the  town  of  Birmingham,  beg  leave  respectfully  to  sub- 
mit to  your  Lordship  the  following  facts  :  1.  During  the  last  two  or  three 
years,  a  very  great  improvement  has  taken  place  in  the  trade  and  commerce 
of  the  town  and  neighborhood.  The  workmen  have  generally  been  placed 
in  a  condition  of  full  employment  and  good  wages,  producing  a  general 
state  of  satisfaction  and  contentment  among  them.  Their  employers  also 
have  enjoyed  a  condition  of  ease  and  security  which  might  be  called 
affluence  when  compared  with  the  losses,  difficulties,  and  anxieties  which 
they  endured  for  several  years  before.  No  stock  of  goods  was  accumu- 
lated, no  overtrading  of  any  kind  existed ;  the  products  of  one  man's  in- 
dustry were  readily  exchanged  for  those  of  another  ;  and  all  the  products 
of  industry  in  every  trade  were  carried  off  into  the  absolute  consumption 
of  the  people  quite  as  fast  as  they  could  be  produced. 


Utility  of  Paper-Money.  161 

"  2.  Suddenly,  within  the  last  three  months,  with  all  the  elements  of 
general  prosperity  remaining  unimpaired,  this  gratifying  state  of  things 
has  disappeared,  and  has  been  succeeded  by  a  general  state  of  difficulty 
and  embarrassment,  threatening  the  most  alarming  consequences  to  all 
classes  of  the  community.  Orders  for  goods  are  countermanded  and  dis- 
continued, both  for  the  foreign  and  home  trade. 

"  The  prices  of  goods  are  falling,  so  as  in  many  cases  to  occasion  a  loss 
instead  of  a  profit  on  their  production.  The  process  of  production  is  thus 
obstructed  ;  the  workmen  are  beginning  to  be  discharged,  or  to  be  placed 
upon  short  employment ;  and  we  are  confident  that,  unless  remedial  meas- 
ures be  immediately  applied,  a  large  proportion  of  our  population  will 
shortly  be  thrown  entirely  out  of  employment. 

"3.  We  earnestly  solicit  the  serious  and  immediate  attention  of  his 
majesty's  government  to  this  alarming  state  of  things,  confidently  hoping 
that  they  will  forthwith  adopt  decisive  and  effectual  measures  for  its 
relief." 

Certainly,  the  legislature  will  most  strangely  neglect  its  duty,  if  it  allow 
a  system  productive  of  such  fatal  consequences  to  continue  to  spread  its 
roots  and  scatter  its  seeds  on  all  sides.  As  long  as  any  individual  or  set 
of  individuals,  may  usurp  the  royal  prerogative,  and  issue  money  without 
let  or  hindrance,  so  long  will  it  be  issued  in  excess  in  periods  when  prices 
are  rising  and  confidence  high,  and  be  suddenly  and  improperly  withdrawn 
when  prices  are  falling  and  confidence  shaken.  All  the  causes  of  fluctu- 
ation inherent  in  the  nature  of  industry  are  aggravated  a  thousand  fold  by 
this  vicious  system,  at  the  same  time  that  it  brings  many  new  ones  into  ex- 
istence. There  is  not,  in  fact,  any  reason  for  supposing,  that  if  our  cur- 
rency had  been  either  metallic,  or  made  to  fluctuate  exactly  as  it  would 
have  done  had  it  been  metallic,  that  the  difficulties  in  which  we  were  in- 
volved in  1836  and  1837  would  ever  have  been  heard  of.  The  inordinate 
increase  of  banks,  of  money,  and  of  the  facilities  for  obtaining  money,  in 
the  spring  of  1836,  contributed  powerfully  to  the  rapid  and  uncalled-for 
increase  of  prices,  the  multiplication  of  wild  and  absurd  projects,  and  the 
excess  of  confidence  which  distinguished  that  period;  at  the  same  time 
that,  by  bringing  on  a  fall  of  the  exchange  and  a  drain  for  bullion,  they 
insured  the  subsequent  revulsion.  If  it  be  wished  that  the  country  should 
be  kept  forever  under  an  intermittent  fever,  —  now  suffering  from  a  hot 
and  then  from  a  cold  fit,  now  in  an  unnatural  state  of  excitement,  leading 
to,  and  necessarily  ending  in,  an  unnatural  state  of  depression,  —  the  pres- 
ent money  system  is  the  best  possible.  But  we  believe  the  reader  will 
agree  with  us  in  thinking,  that  a  fever  of  this  sort  is  not  more  injurious  to 
the  animal  than  to  the  political  body.  So  dangerous  a  disorder  is  not  to 
be  trifled  or  tampered  with.  This  is  not  a  case  in  which  palliatives  and 
anodynes  can  be  of  any  real  service.  If  a  radical  cure  be  not  effected,  it 
will  go  far  to  paralyze  and  destroy  the  patient. 

Now,  to  accomplish  this  radical  cure,  that  is,  to  make  sure  that  the  fluctu- 
ations of  the  currency  shall  not  exceed  those  which,  would  occur  were  it 
wholly  metallic,  it  is  indispensable  as  already  stated,  that  all  local  notes 
should  be  suppressed,  and  the  issue  of  paper  confined  entirely  to  one 
body. 

The  exacting  of  security  previously  to  the  issue  of  notes  would  guaran- 


1 62  Paper-Money. 

tee  the  holders  from  loss,  and  be  in  so  far  advantageous ;  but  it  would  not 
hinder  that  competition  among  the  issuers  that  is  so  very  injurious,  nor 
prevent  the  supply  of  paper  being  at  one  time  in  excess,  and  at  another 
deficient.  If  we  would  provide  for  that  unity  of  action  and  that  equality 
of  value  that  are  so  indispensable,  we  must  make  an  end  of  a  plurality  of 
issuers.  If  one  body  only  were  intrusted  with  the  issue  of  notes,  it  would 
be  able  immediately  to  narrow  the  currency  when  bullion  began  to  be  ex- 
ported, and  to  expand  it  when  it  began  to  be  imported  ;  and  it  would  be 
easy  for  the  legislature  to  lay  down  and  enforce  such  regulations  as  would 
effectually  prevent  the  fluctuations  in  the  amount  and  value  of  the  cur- 
rency ever  exceeding  those  that  would  take  place  if  it  consisted  wholly  of 
the  precious  metals.  But  nothing  of  the  sort  need  be  attempted,  so  long 
as  it  is  supplied  by  more  than  one  source.  Everything  must  then  be  left  to 
the  discretion  of  the  parties.  And  it  will  certainly  happen  in  time  to 
come,  as  it  has  invariably  happened  in  time  past,  that  some  of  them  will 
be  increasing  their  issues  when  they  should  be  diminished,  and  diminishing 
them  when  they  should  be  increased. 

Mr.  S.  J.  Loyd,  whose  authority  on  all  questions  of  this  sort  is  so  de- 
servedly high,  states  distinctly,  that  "  an  adherence  to  sound  principle  would 
certainly  lead  to  the  conclusion,  that  the  issues  of  paper-money  should  be 
confined  to  one  body,  intrusted  with  full  power  and  control  over  the  issues, 
and  made  exclusively  responsible  for  the  due  regulation  of  their  amount" 
(Reflections  on  the  Pamphlet  of  Mr.  Horsley  Palmer,  p.  52.)  He  is,  however, 
disposed  to  think  that  the  practice  in  this  country,  of  individuals  and  asso- 
ciations issuing  notes,  has  been  so  long  established,  and  become  so  inti- 
mately connected  with  the  habits  and  prejudices  of  the  people,  as  to  leave 
but  little  hope  of  its  eradication.  We  do  not,  however,  think  that  the  dif- 
ficulties in  the  way  of  the  suppression  of  local  notes  would  be  found 
to  be  nearly  so  great  were  it  set  seriously  about,  as  Mr.  Loyd  seems 
to  infer.  Were  parliament  to  enact  that  all  local  or  provincial  notes  pay- 
able on  demand  in  England  and  Wales  should  cease  to  circulate  some  two 
or  three  years  hence,  their  withdrawal  might,  we  apprehend,  be  effected 
with  very  little  trouble  and  inconvenience.  The  circulation  of  notes,  now 
that  those  for  less  than  £5  have  been  suppressed,  is  far  from  being  one  of 
the  principal  sources  of  banking  profits.  The  stamp  duty,  the  expense  of 
engraving,  and  the  still  heavier  expense  necessary  to  keep  notes  afloat,  and 
to  provide  for  their  payment  when  they  may  happen  to  be  presented,  cut 
deep  into  the  profits  made  by  their  issue.  Our  readers  are  no  doubt  gen- 
erally aware  that  several  country  banks  have,  within  the  half  dozen  years 
ending  with  1837,  withdrawn  their  own  notes  from  circulation,  and  issued 
in  their  stead  those  of  the  Bank  of  England,  according  to  certain  terms 
agreed  on  with  the  latter.  The  banks  in  question  would  not  certainly  have 
done  this,  had  it  made  any  serious  inroad  on  their  profits.  But  it  has  not 
sensibly  diminished  them ;  and  the  proof  of  this  is,  that  the  banks  which 
have  made  this  arrangement  realize  quite  as  large  profits  as  are  realized 
by  those  that  continue  to  issue  notes  of  their  own.  We  submit  that  this  is 
decisive  of  the  whole  question.  It  proves  that  the  profits  of  the  provincial 
banks  are  not  sensibly  impaired  by  the  substitution  for  their  own,  of  Bank 
of  England  notes.  Had  the  project  for  suppressing  local  notes  been  pro- 
ductive of  any  considerable  loss  to  the  issuers,  it  would  have  furnished  a 


Utility  of  Paper-Money.  163 

plausible,  though  by  no  means  a  valid,  argument  against  it ;  for  it  would 
be  contradictory  and  absurd  to  pretend  that  any  set  of  persons  can  be  en- 
titled permanently  to  enjoy  a  privilege  injurious  to  the  community.  But 
there  is  no  room  nor  ground  even  for  an  appeal  ad  misericordiam  on  the 
part  of  the  private  issuers.  The  fact  that  numbers  of  them  have  sponta- 
neously, and  without  solicitation  of  any  kind,  abandoned  the  privilege  of 
issue,  and  replaced  their  own  notes  with  those  of  the  central  issuer  in  Lon- 
don, shows  conclusively  that  the  privilege  in  question  is  worth  little  or 
nothing,  and,  consequently,  that  it  may  be  withdrawn  without  entailing  any 
considerable  hardship  on  any  one.  It  is  essential  to  the  placing  of  the 
currency  on  a  proper  footing,  that  all  local  notes  should  be  suppressed ;  and 
as  their  suppression  would  not  be  injurious  to  the  issuers,  what  possible 
reason  can  be  alleged  for  continuing  their  circulation  ? 


Mode  in  which  a  single  Issuer  of  Paper  should  act  so  as  to  make  the  Amount  and  Value 
of  the  Currency  vary  exactly  as  if  it  were  Metallic. 

We  have  said  that  it  would  be  easy,  were  there  only  one  issuer,  to  en- 
force compliance  with  such  rules  and  regulations  as  would  make  the  amount 
and  value  of  the  currency  vary  at  all  times  exactly  as  if  it  were  metallic. 
This  has  been  doubted  ;  but  nothing  could  be  more  facile.  Suppose  that 
all  local  notes  are  withdrawn,  and  that  there  is  only  one  issuer  of  paper ; 
all  that  would  be  necessary  to  maintain  an  identity  of  amount  and  value 
between  gold  and  paper  would  be  to  regulate  the  currency  exclusively  by 
the  influx  and  efflux  of  bullion ;  that  is,  never  to  issue  an  additional  note 
except  it  be  paid  away  for  an  equivalent  amount  of  bullion  brought  to  the 
office,  nor  to  withdraw  a  note  except  when  it  is  received  in  payment  of  an 
equivalent  amount  of  bullion  demanded  from  the  office.  The  business  of 
such  an  office  would  be  entirely  routine.  Its  managers  would  have  no 
sort  of  discretion ;  their  duty  being  merely  to  give  paper  for  gold  and  gold 
for  paper,  according  to  the  demands  of  the  public.  It  has  been  frequently 
objected  to  the  establishment  of  a  national  bank,  that  it  would  become  a 
focus  of  intrigue  and  jobbing,  and  would  be  prostituted,  or  supposed  to  be 
prostituted,  for  the  advancement  of  mere  party  purposes ;  and  this,  no 
doubt,  would  be  the  case,  were  it  allowed  to  discount  and  to  transact  ordi- 
nary banking  business.  A  national  bank  for  such  purposes  would  be  a 
national  nuisance,  that  would  very  soon  require  to  be  abated.  But  were  it 
confined  as  it  should  be,  to  the  mere  issue  of  paper  on  the  principle  and  in 
the  way  now  stated,  it  could  not  be  perverted  to  any  sort  of  sinister  object 
Its  conductors  would  be  restricted  to  a  sort  of  mill-horse  path,  and  it  would 
be  impossible  for  them,  even  if  so  disposed,  to  show  favor  or  partiality 
to  any  one.  All  would  depend  on  an  invariable  rule ;  and  the  amount  and 
value  of  the  paper  afloat  would  never  exceed  nor  fall  short  of  the  amount 
and  value  of  the  bullion  that  would  circulate  in  its  stead  were  it  with- 
drawn. 

Supposing  the  average  amount  of  paper  afloat  with  a  single  issuer  to  be 
from  thirty  to  forty  millions,  a  stock  of  ten  or  twelve  millions  of  bullion 
would  be  more  than  sufficient  to  begin  with ;  for  it  is  hardly  possible  to 
imagine,  under  such  a  system,  that  anything  should  ever  occur  to  lessen 


164  Paper-Money. 

the  paper  currency  so  much  as  twenty  per  cent.,  or  consequently  to  occa- 
sion a  demand  for  so  much  as  six  or  eight  millions  of  bullion. 


Principle  on  which  the  Bank  of  England  endeavors  to  govern  her  Issues :     Counteracting 
agencies  to  which  she  must  attend. 

The  Bank  of  England  has  endeavored,  for  a  considerable  number  of 
years  past,  to  govern  her  issues  nearly  in  the  way  now  pointed  out.  But, 
in  her  present  situation,  having  her  operations  frequently  contracted  by 
other  issuers,  she  neither  can  nor  ought  always  to  regulate  her  conduct  by 
a  regard  to  strict  principle.  She  must  look  to  the  proceedings  of  others,  by 
which  she  may  be  deeply  compromised ;  and  she  must  not  only  consider 
what  may  be  the  effect  of  the  measures  she  may  adopt  on  the  exchange,  or 
on  the  influx  and  efflux  of  bullion,  but  how  they  may  be  regarded  by  the  pro- 
vincial banks,  and  expected  to  influence  them.  Hence  the  bank  may  fre- 
quently be  justified  in  narrowing  her  issues  when,  had  she  been  the  sole 
issuer,  she  ought  to  have  increased  them,  and  conversely.  But  it  is  needless 
to  say  that  this  is  a  most  unsatisfactory  state  of  things,  both  as  respects  the 
bank  and  the  country.  The  former  is  obliged  to  exercise  a  discretion  which 
cannot  be  safely  confided  to  any  set  of  individuals,  whilst  the  latter  is  sure 
to  suffer  from  all  the  errors  into  which  the  directors  may  fall,  as  well  as 
from  the  disastrous  consequences  resulting  from  that  competition  of  rival 
and  conflicting  issuers,  against  which  no  degree  of  intelligence  on  the  part 
of  the  directors  of  the  Bank  of  England  can  possibly  guard.  In  fact,  we 
have  no  idea  that  it  will  be  practicable  for  the  latter  and  the  country  banks 
to  go  on  together  on  their  present  footing.  As  matters  now  stand,  the 
Bank  of  England  may  be  brought  at  any  time,  and  frequently  is  brought, 
into  the  greatest  jeopardy  by  the  proceedings  of  parties  over  whom  she  has 
no  sort  of  control.  The  over-issue  of  the  provincial  banks,  by  depressing 
the  exchange,  drains  the  bank  of  gold ;  and  then  their  discredit,  and  per- 
haps failure,  may,  by  exciting  a  panic,  bring  her  to  a  stand  still !  Provided 
banks  of  deposit  be  established  on  sound  principles,  there  cannot  be  too 
many  of  them.  But  it  is  quite  otherwise  with  banks  of  issue.  The  more 
they  are  multiplied,  the  greater  is  the  chance  of  fluctuation  in  their  issues, 
and  consequently  ia  prices,  credit,  etc.  Had  the  Bank  of  England  been 
the  sole  issuer  of  paper,  the  crashes  of  1792-93  and  of  1825-26,  and  the 
revulsion  of  1836-37,  would  not  have  occurred.  They  grew  entirely  out  of 
the  competition  and  proceedings  of  the  provincial  banks,  and  are  in  no  de- 
gree whatever  ascribable  to  anything  else,  domestic  or  foreign. 

According  to  existing  arrangements,  the  charter  of  the  Bank  of  England 
must  continue  on  its  present  footing  till  1845.  But  we  have  no  doubt,  that 
were  parliament  to  set  about  suppressing  local  issues,  —  an  improvement 
that  must  precede  every  other,  —  the  bank  would  readily  concur  in  any 
arrangement  by  which  the  proper  regulation  of  her  issues  might  be  pro- 
vided for  and  secured.  But  the  suppression  of  local  paper  is  indispensable 
as  a  preliminary  to  pave  the  way  for  other  measures.  Fluctuations  in  its 
amount  and  value  are  of  the  essence  of  a  currency  supplied  by  different 
issuers.  If  the  country  continue  to  tolerate  the  latter,  it  will  unavoidably 
continue  to  suffer  the  perpetual  recurrence  of  the  former. 


Classes  of  Banks, 


PART    SECOND. —  BANKS. 


CHAPTER  m. 


CLASSES   OP   BANKS. 

BANKS  are  commonly  divided  into  banks  of  deposit  and  banks  of  issue ; 
that  is,  banks  that  take  care  of  other  people's  money,  and  banks  that  issue 
money  of  their  own.  But  there  are  very  few  banks  of  issue  that  are  not 
at  the  same  time  banks  of  deposit.  This  class  of  banks,  as  they  exist  in 
this  and  most  other  countries,  are  places  where  the  money  of  individuals  is 
received  in  deposit,  payment  being  also  made  on  their  account,  and  loans 
made  to  the  public.  The  managers  of  such  banks  are  sometimes  accus- 
tomed, as  in  most  parts  of  England  and  Scotland,  to  pay  interest  at  about 
one  or  two  per  cent,  under  the  market-rate  for  the  money  deposited  in  their 
hands  ;  but  when  the  business  to  be  transacted  in  the  receipt  and  payment 
of  money  on  account  of  depositors  is  very  large,  it  is  not  the  practice  for 
bankers,  unless  the  deposits  be  proportionally  great,  to  allow  interest.  The 
latter  is  the  case  in  London.  It  is  there  customary  for  merchants  and  other 
people  to  send  all  the  bills  and  drafts  payable  to  them  to  their  bankers,  who 
make  themselves  responsible  for  their  regular  presentation  for  payment,  and 
for  their  noting  if  not  paid ;  and  it  is  there  also  the  practice  to  make  all  con- 
siderable payments  by  checks  on  bankers.  Banking  business  is  conducted 
in  London  at  a  heavy  expense,  and  no  little  risk ;  and  the  London  bankers 
do  not,  therefore,  except  in  special  cases,  allow  interest  on  deposits.  They 
are  in  the  habit  of  stipulating,  in  order  to  indemnify  themselves  for  their 
trouble  and  outlay,  that  the  individuals  dealing  with  them  should  keep  an 
average  balance  of  cash  in  their  hands,  varying  according  to  the  amount 
of  business  transacted  on  their  account.  The  bankers  then  estimate,  as 
well  as  they  can,  the  amount  of  cash  they  must  keep  in  their  coffers  to 
meet  the  probable  demands  of  their  customers,  and  employ  the  balance  in 
discounting  mercantile  bills,  in  the  purchase  of  government  securities,  or  in 
some  other  sort  of  profitable  adventure  ;  so  that  their  profits  consist  of  the 
sum  they  realize  upon  such  parts  of  the  money  lodged  in  their  hands  as 
they  are  able  to  employ  in  an  advantageous  way,  after  deducting  the  vari- 
ous expenses  attendant  on  the  management  of  their  establishments.  A 
bank  of  deposit  would  never  be  established  if  it  had  to  depend  on  its  own 
capital.  It  makes  no  profit,  in  its  capacity  of  bank,  till  it  begins  to  employ 
the  capital  of  others. 


166  Paper-Money. 


Introduction  and  Growth  of  Private  Banking. 

The  business  of  banking  was  not  introduced  into  London  till  the  seven- 
teenth century.  It  was  at  first  conducted  by  the  goldsmiths,  who  borrowed 
money  from  their  customers  at  a  certain  rate  of  interest,  and  lent  it  to 
government  and  to  private  individuals  at  a  higher  rate.  In  the  course  of 
time,  the  business  came  to  be  conducted  by  houses  who  confined  themselves 
to  it  only,  and  nearly  in  the  mode  in  which  we  now  find  it.  From  1708, 
as  already  stated,  down  to  1826,  with  the  exception  of  the  Bank  of  Eng- 
land, no  company  with  more  than  six  partners  could  be  established,  either 
in  London  or  anywhere  else  in  England  and  Wales,  for  conducting  bank- 
ing business  ;  and  by  far  the  largest  portion  of  that  business  is  still  con- 
ducted in  the  metropolis  by  firms  with  a  small  number  of  partners  or  by 
what  are  called  private  banks. 

Clearing  House. 

In  1775,  the  London,  or  rather  the  "  city,"  bankers  established  the  "clear- 
ing house."  This  is  a  house  to  which  each  banker  who  deals  with  it  is  in  the 
habit  daily  of  sending  a  clerk,  who  carries  with  him  the  various  bills  and 
checks  in  the  possession  of  his  house  that  are  drawn  upon  other  bankers  ; 
and  having  exchanged  them  for  the  bills  and  checks  in  the  possession  of  those 
others  that  are  drawn  upon  his  constituents,  the  balance  on  the  one  side  or 
the  other  is  paid  in  cash  or  Bank  of  England  notes.  By  this  contrivance, 
the  bankers  connected  with  the  clearing  house  are  enabled  to  settle  trans- 
actions to  the  extent  of  several  millions  a  day,  by  the  employment  of  not 
more,  at  an  average,  than  from  £200,000  to  £500,000  cash  or  Bank  of 
England  notes. 


Regulations  to  which  Banks  for  Deposit  only  should  be  subjected. 

The  security  afforded  by  a  bank  of  deposit  is  a  matter  as  to  which  there 
must  always  be  more  or  less  of  doubt.  When,  indeed,  a  banking  company 
confines  itself  to  its  proper  business,  and  does  not  embark  in  speculations 
of  unusual  hazard,  or  from  which  its  funds  cannot  be  easily  withdrawn 
in  the  event  of  any  sudden  run  or  demand,  it  can  hardly  ever  fail  of  being 
in  a  situation  to  meet  its  engagements ;  whilst  the  large  private  fortunes 
that  most  commonly  belong  to  the  partners  afford  those  who  deal  with  it 
an  additional  guarantee.  Much,  however,  depends  on  the  character  of  the 
parties  and  on  a  variety  of  circumstances  with  respect  to  which  the  public 
can  never  be  correctly  informed ;  so  that  though  there  can  be  no  doubt 
that  the  security  afforded  by  many  private  banks  of  deposit  is  of  the  most 
unexceptionable  description,  this  may  not  be  the  case  with  others. 

All  joint-stock  banks,  or  banks  having  more  than  six  partners,  whether 
for  deposit  and  issue,  or  for  deposit  merely,  are  ordered,  by  the  act  3  and  4 
Will.  IV.  cap.  83,  to  send  quarterly  returns  of  the  number  and  names  of 
their  partners  to  the  stamp-office.  We  see  no  good  reason  why  similar  re- 
turns should  not,  and  several  why  they  should,  be  required  from  all  banks ; 


Bank  of  England.  ]  fi7 

and  provided  means  were  adopted  for  the  proper  publication  of  such  re- 
turns, so  that  everybody  might  know  with  whom  they  were  dealing,  but 
little  if  any  farther  information  would  be  required  with  banks  not  issuing 
notes.  There  is  in  this  respect  a  wide  difference  between  them  and  banks 
of  issue.  It  is  the  duty  of  the  government  to  take  care  that  the  value  of 
the  currency  shall  be  as  invariable  as  possible ;  but  it  has  never  been  pre- 
tended that  it  is  any  part  whatever  of  its  duty  to  inquire  into  the  security 
given  by  the  borrowers  to  the  lenders  of  money,  any  more  than  into  the 
security  given  by  the  borrowers  to  the  lenders  of  anything  else.  Gov- 
ernment very  properly  obliges  a  goldsmith  to  have  his  goods  stamped,  this 
being  a  security  to  the  public  that  they  shall  not  be  imposed  on  in  buying 
articles  of  the  quality  of  which  they  are  generally  ignorant ;  but  it  does  not  re- 
quire that  the  persons  to  whom  the  goldsmith  sells  or  lends  his  goods  should 
give  him  a  guarantee  for  their  payment.  This  is  a  matter  as  to  which  indi- 
viduals are  fully  competent  to  judge  for  themselves ;  and  there  neither  is 
nor  can  be  any  reason  why  a  lender  or  depositor  of  bullion  or  notes  should 
be  more  protected  than  a  lender  or  depositor  of  timber,  coal,  or  sugar.  Gold 
being  the  standard  or  measure  of  value,  government  is  bound  to  take  ef- 
fectual precautions  that  the  currency  shall  truly  correspond  in  the  whole 
and  in  all  its  parts  with  that  standard,  that  every  pound-note  shall  be  worth 
a  sovereign,  and  that  the  amount  and  value  of  the  aggregate  notes  in  circu- 
lation shall  vary  exactly  as  a  gold  currency  would  do  were  it  substituted  in 
their  stead.  But  this  is  all  that  government  is  called  upon  to  do.  If  A 
trust  a  sum  of  money  in  the  hands  of  B,  it  is  their  affair,  and  concerns  no 
one  else.  Provided  the,  money  afloat  correspond  with  the  standard,  it  is  of 
no  importance,  in  a  public  point  of  view,  into  whose  hands  it  may  come. 
The  bankruptcy  of  a  deposit  bank,  like  that  of  a  private  gentleman  who 
has  borrowed  largely,  may  be  productive  of  much  loss  or  inconvenience  to 
its  creditors.  But  if  the  paper  in  circulation  be  equivalent  to  gold,  such 
bankruptcies  cannot  affect  either  the  quantity  or  value  of  money ;  and  are, 
therefore,  injurious  only  to  the  parties  concerned. 


CHAPTER  IV. 


BANK   OP   ENGLAND. 


THE  Bank  of  England,  which  has  long  been  the  principal  bank  of  de- 
posit and  circulation,  not  in  this  country  only,  but  in  Europe,  was  founded 
in  1694.    Its  principal  projector  was  Mr.  William  Paterson,  an  enterprising 
and  intelligent  Scotch  gentleman,  who  was  afterwards  engaged  in  the  i 
fated  colony  at  Darien.     Government  being  at  the  time  much  distressed 
for  want  of  money,  partly  from  the  defects  and  abuses  in  the  system  ol 
taxation,  and  partly  from  the  difficulty  of  borrowing,  because  of  the  sup- 
posed  instability  of  the  revolutionary  establishment,  the  bank  grew  out  of 
a  loan  of  £1,200,000  for  the  public  service.    The  subscribers,  besn 


168  Paper-Money. 

ceiving  eight  per  cent,  on  the  sum  advanced  as  interest,  and  £4,000  a  year 
as  the  expense  of  management,  in  all  £100,000  a  year,  were  incorporated 
into  a  society  denominated  the  Governor  and  Company  of  the  Bank  of 
England.  The  charter  is  dated  the  27th  of  July,  1694.  It  declares, 
amongst  other  things,  that  they  shall  "  be  capable,  in  law,  to  purchase,  en- 
joy, and  retain  to  them  and  their  successors,  any  moneys,  lands,  rents,  tene- 
ments, and  possessions  whatsoever ;  and  to  purchase  and  acquire  all  sorts 
of  goods  and  chattels  whatsoever,  wherein  they  are  not  restrained  by  act 
of  parliament ;  and  also  to  grant,  demise,  and  dispose  of  the  same. 

"  That  the  management  and  government  of  the  corporation  be  committed 
to  the  governor  and  twenty-four  directors,  who  shall  be  elected  between 
the  25th  of  March  and  the  25th  day  of  April  each  year,  from  among  the 
members  of  the  company  duly  qualified. 

"  That  no  dividend  shall  at  any  time  be  made  by  the  said  governor  and 
company,  save  only  out  of  the  interest,  profit,  or  produce  arising  by  or  out 
of  the  said  capital  stock  or  fund,  or  by  such  dealing  as  is  allowed  by  act  of 
parliament. 

"  They  must  be  natural-born  subjects  of  England,  or  naturalized  subjects ; 
they  shall  have  in  their  own  name,  and  for  their  own  use,  severally,  viz  : 
the  governor  at  least  £4000,  the  deputy-governor  £3000,  and  each  director 
£2000,  of  the  capital  stock  of  the  said  corporation. 

"  That  thirteen  or  more  of  the  said  governors  and  directors  (of  which 
the  governor  or  deputy-governor  must  be  always  one)  shall  constitute  a 
court  of  directors,  for  the  management  of  the  affairs  of  the  company,  and 
for  the  appointment  of  all  agents  and  servants  which  may  be  necessary, 
paying  them  such  salaries  as  they  may  consider  reasonable. 

"  Every  elector  must  have,  in  his  own  name,  and  for  his  own  use,  £500 
or  more  capital  stock,  and  can  only  give  one  vote.  He  must,  if  required 
by  any  member  present,  take  the  oath  of  stock,  or  the  declaration  of  stock, 
in  case  he  be  one  of  the  people  called  Quakers. 

"  Four  general  courts  to  be  held  in  every  year,  in  the  months  of  Sep- 
tember, December,  April,  and  July.  A  general  court  may  be  summoned 
at  any  time,  upon  the  requisition  of  nine  proprietors  duly  qualified  as  elec- 
tors. 

"  The  majority  of  electors  in  general  courts  have  the  power  to  make  and 
constitute  by-laws  and  ordinances  for  the  government  of  the  corporation, 
provided  that  such  by-laws  and  ordinances  be  not  repugnant  to  the  laws  of 
the  kingdom,  and  be  confirmed  and  approved,  according  to  the  statutes  in 
such  case  made  and  provided." 

The  corporation  is  prohibited  from  engaging  in  any  sort  of  commercial 
undertaking  other  than  dealing  in  bills  of  exchange,  and  in  gold  and  silver. 
It  is  authorized  to  advance  money  upon  the  security  of  goods  or  merchan- 
dise pledged  to  it  ;  and  to  sell  by  public  auction  such  goods  as  are  not  re- 
deemed within  a  specified  time. 

It  was  also  enacted,  in  the  same  year  in  which  the  bank  was  established, 
by  statute  6  William  and  Mary,  c.  20,  that  the  bank  "  shall  not  deal  in 
any  goods,  wares,  or  merchandise  (except  bullion),  or  purchase  any  lands 
or  revenues  belonging  to  the  crown,  or  advance  or  lend  to  their  majesties, 
their  heirs  or  successors,  any  sum  or  sums  of  money,  by  way  of  loan  or  an- 
ticipation, or  any  part  or  parts,  branch  or  branches,  fund  or  funds,  of  the 


Bank  of  England,  169 

revenue  now  granted  or  belonging,  or  hereafter  to  be  granted,  to  their 
majesties,  their  heirs  and  successors,  other  than  such  fund  or  funds,  part  or 
parts,  branch  or  branches,  of  the  said  revenue  only,  on  which  a  credit  of 
loan  is  or  shall  be  granted  by  parliament.  And  in  1697,  it  was  enacted, 
that  the  "  common  capital  or  principal  stock,  and  also  the  real  fund,  of  the 
governor  and  company,  or  any  profit  or  produce  to  be  made  thereof,  or 
arising  thereby,  shall  be  exempted  from  any  rates,  taxes,  assessments,  or 
impositions  whatsoever,  during  the  continuance  of  the  bank ;  that  all  the 
profit,  benefit,  and  advantage  from  time  to  time  arising  out  of  the  manage- 
ment of  the  said  corporation,  shall  be  applied  to  the  uses  of  all  the  members 
of  the  said  association  of  the  governor  and  company  of  the  Bank  of  Eng- 
land, ratably  and  in  proportion  to  each  member's  part,  share,  and  interest 
in  the  common  capital  and  principal  stock  of  the  said  governor  and  com- 
pany hereby  established." 

In  1696,  during  the  great  recoinage,  the  bank  was  involved  in  great 
difficulties,  and  was  even  compelled  to  suspend  payment  of  her  notes,  which 
were  at  a  heavy  discount.  Owing,  however,  to  the  judicious  conduct  of  the 
directors,  and  the  assistance  of  the  government,  the  bank  got  over  the 
crisis.  But  it  was  at  the  same  time  judged  expedient,  in  order  to  place 
her  in  a  situation  the  better  to  withstand  any  adverse  circumstances  that 
might  afterwards  occur,  to  increase  her  capital  from  £1,200,000  to  £2,201, - 
171.  In  1708,  the  directors  undertook  to  pay  off  and  cancel  one  million 
and  a  half  of  exchequer  bills  they  had  circulating  two  years  before,  at  four 
and  a  half  per  cent.,  with  the  interest  upon  them,  amounting  in  all  to 
£1,775,028,  which  increased  the  permanent  debt  due  by  the  public 
to  the  bank,  including  £400,000,  then  advanced  in  consideration  of  the 
renewal  of  the  charter,  to  £3,375,028,  for  which  they  were  allowed  six 
per  cent.  The  bank  capital  was  then  also  doubled,  or  increased  to  £4,402,- 
343.  But  the  year  1708  is  chiefly  memorable  in  the  history  of  the  bank 
for  the  act  previously  alluded  to,  which  declared,  that  during  the  continu- 
ance of  the  corporation  of  the  Bank  of  England,  "  it  should  not  be  lawful 
for  any  body  politic,  erected  or  to  be  erected,  other  than  the  said  governor 
and  company  of  the  Bank  of  England,  or  of  any  other  persons  whatsoever, 
united  or  to  be  united  in  covenants  or  partnership,  exceeding  the  number 
of  six  persons,  in  that  part  of  Great  Britain  called  England,  to  borrow, 
owe,  or  take  up  any  sum  or  sums  of  money  on  their  bills  or  notes  payable 
on  demand,  or  in  any  less  time  than  six  months  from  the  borrowing  there- 
of. "  This  proviso,  which  has  had  so  powerful  an  operation  on  banking  in 
England,  is  said  to  have  been  elicited  by  the  Mine -Adventure  Company 
having  commenced  banking  business,  and  begun  to  issue  notes. 

The  charter  of  the  Bank  of  England,  when  first  granted,  was  to  con- 
tinue for  eleven  years  certain,  or  till  a  year's  notice  after  the  1st  of  August, 
1705.  The  charter  was  further  prolonged  in  1697.  In  1708,  the  bank 
having  advanced  £400,000  for  the  public  service,  without  interest,  the  ex- 
clusive privileges  of  the  corporation  were  prolonged  till  1733.  And  in 
consequence  of  various  advances  made  at  different  times,  the  exclusive 
privileges  of  the  bank  have  been  continued  by  successive  renewals,  till  a 
year's  notice  after  the  1st  of  August,  1855,  under  the  proviso  that  they 
may  be  cancelled,  on  a  year's  notice  to  that  effect  being  given  on  the  1st  of 
August,  1845. 


170 


Paper-Money. 


Renewals  of  Bank  Charter,  with  the  Conditions. 

We  subjoin  an  account  of  the  successive  renewals  of  the  charter,  of  the 
conditions  under  which  these  renewals  were  made,  and  of  the  variations  in 
the  amount  and  interest  of  the  permanent  debt  due  by  government  to  the 
bank,  exclusive  of  the  dead  weight. 


Date  of 

Renewal. 

Conditions  under  which  Renewals  were  made  and  Permanent 
Debt  contracted. 

Permanent  Debt. 

1694 

1697 
1708 

1713 
1742 

Charter  granted  under  the  act  5  and  6  Will.  III.  c.  20, 
redeemable  upon  the  expiration  of  twelve  months' 
notice  after  the  1st  August,  1705,  upon  payment  by 
the  public  to  the  bank,  of  the  demand  therein  spec- 
ified. 
Under  this  act  the  bank  advanced  to  the  public 
£1,200,000,  in  consideration  of  their  receiving  an 
annuity  of  £100,000  a  year,  viz.  eight  per  cent,  in- 
terest and  £4  000  for  management  

£.      *    s.    d. 
1,200,000    0    0 

2,175,027  17  10 
2,000,000     0     0 

4,000,000    0     0 

Charter  continued  by  8  and  9  Will.  III.  c.  20,  till 
twelve  months'  notice  after  1st  of  August  1710,  on 
payment,  etc. 
Under  this  act  the  bank  took  up   and  added  to 
their  stock  £1,001,171  exchequer  bills  and  tallies. 
Charter  continued  by  7  Anne,  c.  7,  till  twelve  months' 
notice  after  1st  of  August,  1732,  on  payment,  etc. 
Under  this  act  the  bank  advanced  £400,000  to 
government  without  interest  ;  and  delivered  up  to 
be  cancelled  £1,775,027,  17s.  lOd.  exchequer  bills 
in  consideration  of  their   receiving  an  annuity  of 
£106,501  13s.  being  at  the  rate  of  six  per  cent  
Charter  continued  by  12  Anne,  stat.  1,  cap.  11,  till 
twelve  months'  notice  after  the  first  of  August  1  742, 
on  payment,  etc. 
In  1716,  by  the  3d  Geo.  I.  c.  8,  the  bank  advanced 

And  by  the   same  act,  the  interest  on  the  ex- 
chequer bills  cancelled  in  1780  was  reduced  from 
six  to  five  per  cent. 
In  1721,  by  8  Geo.  I.  c.  21,  the  South  Sea  Com- 
pany were  authorized  to  sell  £200,000  government 
annuities,  and  corporations  purchasing  the  same  at 
26    years'    purchase    were  authorized  to  add  the 
amount  to  their    capital  stock.     The   bank    pur- 
chased the  whole  of  these  annuities  at  20  years'  pur- 
chase   

Five  per  cent,  interest  was  payable  on  this  sum 
to  mid-summer  1727,  and  thereafter  four  per  cent. 
At  different  times  between  1727  and  1738,  both 
inclusive,  the  bank  received  from  the  public,  on  ac- 
count of  permanent  debt,  £3,275,027,  17s.  lOd.  and 
advanced  to  it  on  account  of  ditto  £3,000,000  :  Dif 
ference  

9,375,027  17  10 
275,027  17  10 

Charter  continued  by  15  Geo.  II.  c.  13,  till  twelve 
months'  notice  after  the  1st  of  August,  1764,  on 
payment,  etc. 
Carry  forward  

9,100,000     0     0 

9,100,000     0     0 

Bank  of  England. 


171 


Date  of 
Renewal. 


Conditions  under  which  Renewals  were  made,  and  Permanent 
Debt  contracted. 


Permanent  Debt. 


1764 


1781 


1800 


1833 


Brought  forward 

Under  this  act  the  bank  advanced  £1,600,000 
without  interest,  which  being  added  to  the  original 
advance  of  £1,200,000,  and  the  £400,000  advanced 
in  1710,  bearing  interest  at  six  per  cent.,  reduced  the 

interest  on  the  whole  to  three  per  cent 

In  1745,  under  the  authority  of  19  Geo.  II.  c.  6, 
the  bank  delivered  up  to  be  cancelled  £986,000  of 
exchequer  bills,  in  consideration  of  an  annuity  of 

£39,472,  being  at  the  rate  of  three  per  cent 

In  1749,  the  23d  Geo.  n.  c.  6,  reduced  the  interest 
on  the  four  per  cent,  annuities,  held  by  the  bank, 
to  three  and  a  half  per  cent,  for  seven  years  from 
the  25th  of  December,  1750,  and  thereafter  to  three 
per  cent. 

Charter  continued  by  4  Geo.  HI.  c.  25,  till  twelve 
months'  notice  after  the  1st  of  August,  1786,  on  pay- 
ment, etc. 

Under  this  act  the  bank  paid  into  the  exchequer 
£110,000  free  of  all  charge. 

Charter  continued  by  21  Geo.  HI.  c.  60,  till  twelve 
months' notice  after  1st  of  August,  1812,  on  payment, 
etc. 

Under  this  act  the  bank  advanced  £3,000,000  for 
the  public  service  for  three  years  at  three  per  cent. 

Charter  continued  by  40  Geo.  III.  c.  28,  till  twelve 
months'  notice  after  the  1st  of  August,  1833,  on  pay- 
ment, etc. 

Under  this  act  the  bank  advanced  to  govern- 
ment £3,000,000  for  six  years  without  interest ;  but 
in  pursuance  of  the  recommendation  of  the  com- 
mittee of  1807,  the  advance  was  continued,  without 
interest,  till  six  months  after  the  signature  of  a  defin- 
itive treaty  of  peace. 

In  1816,  the  bank,  under  authority  of  the  act  56 
Geo.  III.  c.  S6,  advanced  at  three  per  cent.,  to  be  re- 
paid, on  or  before  the  first  of  August,  1833 

Charter  continued  by  3  and  4  Will.  IV.  c.  98,  till 
twelve  months'  notice  after  the  first  of  August, 
1855,  with  a  proviso  that  it  may  be  dissolved  on 
twelve  months'  notice  after  the  1st  of  August,  1845, 
on  payment,  etc. 

This  act  directs  that  in  future  the  bank  shall  de- 
duct £120,000  a  year  from  their  charge  on  account 
of  the  management  of  the  public  debt ;  and  that  a 
fourth  part  of  the  debt  due  by  the  public  to  the 

bank,  or  £3,638,250  be  paid  off * 

Permanent  advance  by  the  bank  to  the  public, 
bearing  interest  at  three  per  cent.,  independent  of 
the  advances  on  account  of  dead  weight,  or  other 
public  securities  held  by  her 


.     £         s.    d. 
9,100,000    0    0 


1,600,000    0    0 
986,000    0    0 


3,000,000     0     0 


14,686,000    0    0 


3,638,250    0    0 


11,047,750    0    0 


For  further  details  as  to  this  subject,  see  the  Appendix,  No.  1,  of  the  Re- 
port of  1832,  on  the  Renewal  of  the  Bank  Charter,  and  the  acts  of  par- 
liament referred  to  in  it  See  also  James  Postlethwayt's  History  of  the 


172  Paper-Money. 

Revenue,  pp.  301-310 ;  and  Fairman  on  the  Funds,  seventh  edition,  pp. 
85-88,  etc. 

The  capital  of  the  bank  on  which  dividends  are  paid  has  never  exactly 
coincided  with,  though  it  has  seldom  differed  very  materially  from,  the  per- 
manent advance  by  the  bank  to  the  public.  We  have  already  seen  that  it 
amounted  in  1708  to  £4,402,243.  Between  that  year  and  1727,  it  had  in- 
creased to  near  £9,000,000.  In  1746,  it  amounted  to  £10,780,000.  From  this 
period,  it  underwent  no  change  till  1782,  when  it  was  increased  eight  per 
cent.,  or  to  £11,642,400.  It  continued  stationary  at  this  sum  down  to  1816, 
when  it  was  raised  to  £14,553,000,  by  an  addition  of  twenty-five  per  cent, 
from  the  profits  of  the  bank,  under  the  provisions  of  the  act  56  Geo.  III. 
c.  96.  The  act  for  the  renewal  of  the  charter,  34  Will.  IV.  c.  98, 
directed  that  the  sum  of  £3,638,250,  the  portion  of  debt  due  to  the 
bank  to  be  repaid  by  the  public,  should  be  deducted  from  the  bank's 
capital ;  which,  in  consequence,  is  now  £10,914,750.  (Report  on  Bank 
Charter,  Appen.  No.  33.) 

Runs  upon  the  Bank. 

The  Bank  of  England  has  been  frequently  affected  by  panics  amongst 
the  holders  of  her  notes.  In  1745,  the  alarm  occasioned  by  the  advance 
of  the  Highlanders,  under  the  Pretender,  as  far  as  Derby,  led  to  a  run 
upon  the  bank  ;  and  in  order  to  gain  time  to  effect  measures  for  averting 
the  run,  the  directors  adopted  the  device  of  paying  in  shillings  and  six- 
pences !  But  they  derived  a  more  effectual  relief  from  the  retreat  of  the 
Highlanders,  and  from  a  resolution  agreed  to  at  a  meeting  of  the  principal 
merchants  and  traders  of  the  city,  and  very  numerously  signed,  declaring 
the  willingness  of  the  subscribers  to  receive  bank-notes  in  payment  of  any 
sum  that  might  be  due  to  them,  and  pledging  themselves  to  use  their  utmost 
endeavors  to  make  all  their  payments  in  the  same  medium. 

During  the  tremendous  riots  in  June,  1780,  the  bank  incurred  consider- 
able danger.  Had  the  mob  attacked  the  establishment  at  the  commence- 
ment of  the  riots,  the  consequences  might  have  proved  fatal.  Luckily, 
however,  they  delayed  their  attack  till  time  had  been  afforded  for  providing 
a  force  sufficient  to  insure  its  safety.  Since  that  period,  a  considerable 
military  force  is  nightly  placed  in  the  interior  of  the  bank  as  a  protection 
in  any  emergency  that  may  occur. 


Suspension  of  Cash  Payments  in  1797. 

The  year  1797  is  the  most  important  epoch  in  the  recent  history  of  the 
bank.  Owing  partly  to  events  connected  with  the  war  in  which  we  were 
then  engaged ;  to  loans  to  the  emperor  of  Germany ;  to  bills  drawn  on 
the  treasury  at  home  by  the  British  agents  abroad ;  and  partly,  and  chiefly, 
perhaps,  to  the  advances  most  unwillingly  made  by  the  bank  to  gov- 
ernment, which  prevented  the  directors  from  having  a  sufficient  control 
over  their  issues,  the  exchanges  became  unfavorable  in  1795,  and  in  that 
and  the  following  year  large  sums  of  specie  were  drawn  from  the  bank. 
In  the  latter  end  of  1796  and  beginning  of  1797,  considerable  apprehen- 


Bank  of  England.  173 

sions  were  entertained  of  invasion,  and  rumors  were  propagated  of  de- 
scents having  been  actually  made  on  the  coast.  In  consequence  of  the 
fears  that  were  thus  excited,  runs  were  made  on  the  provincial  banks,  in 
different  parts  of  the  country ;  and  some  of  them  having  failed,  the  panic 
became  general,  and  extended  itself  to  London.  Demands  for  cash  poured 
in  upon  the  bank  from  all  quarters ;  and,  on  Saturday  the  25th  day  of 
February,  1797,  she  had  only  £1,272,000  of  cash  and  bullion  in  her  coffers, 
with  every  prospect  of  a  violent  run  taking  place  on  the  following  Monday. 
In  this  emergency,  an  order  in  council  was  issued  on  Sunday  the  26th, 
prohibiting  the  directors  from  paying  their  notes  in  cash  until  the  sense  of 
parliament  should  be  taken  on  the  subject.  And  after  parliament  met,  and 
the  measure  had  been  much  discussed,  it  was  agreed  to  continue  the  re- 
striction till  six  months  after  the  signature  of  a  definite  treaty  of  peace. 

As  soon  as  the  order  in  council  prohibiting  payments  in  cash  appeared, 
a  meeting  of  the  principal  bankers,  merchants,  traders,  etc.,  of  the  me- 
tropolis, was  held  at  the  Mansion-house,  when  a  resolution  was  agreed  to, 
and  very  numerously  signed,  pledging,  as  had  been  done  in  1745,  those 
present  to  accept,  and  to  use  every  means  in  their  power  to  cause  bank- 
notes to  be  accepted  as  cash  in  all  transactions.  This  resolution  tended  to 
allay  the  apprehensions  that  the  restriction  had  excited. 

Parliament  being  sitting  at  the  time,  a  committee  was  immediately  ap- 
pointed to  examine  into  the  affairs  of  the  bank ;  and  their  report  put  to 
rest  whatever  doubts  might  have  been  entertained  with  respect  to  the  sol- 
vency of  the  establishment,  by  showing  that,  at  the  moment  when  the  order 
in  council  appeared,  the  bank  was  possessed  of  property  to  the  amount  of 
£15,513,690,  after  all  claims  upon  her  had  been  deducted. 

Much  difference  of  opinion  has  existed  with  respect  to  the  policy  of  the 
restriction  in  1797  ;  but  considering  the  peculiar  circumstances  under 
which  it  took  place,  its  expediency  seems  abundantly  obvious.  The  run 
did  not  originate  in  any  over-issue  of  bank-paper,  but  grew  entirely  out 
of  political  causes.  As  long  as  the  alarms  of  invasion  continued,  it  was 
clear  that  no  bank-paper  immediately  convertible  into  gold  would  remain 
in  circulation.  And  as  the  bank,  although  possessed  of  ample  funds,  was 
without  the  means  of  instantly  retiring  her  notes,  she  might,  but  for  the  in- 
terference of  government,  have  been  obliged  to  stop  payment ;  an  event 
which,  had  it  occurred,  must  have  produced  consequences  in  the  last  de- 
gree fatal  to  the  public  interests. 

Resumption  of  Cash  Payments  in  1821. 

The  error  of  the  government  did  not  consist  in  their  coming  to  the  as- 
sistance of  the  bank,  but  in  their  continuing  the  restriction  after  the  alarm 
of  invasion  had  ceased,  and  there  was  nothing  to  hinder  the  bank  from 
safely  reverting  to  specie  payments.  We  have  already  pointed  out  (see 
article  MONET,  pages  128,  129)  the  influence  of  the  suspension  upon  the 
conduct  of  the  bank,  and  the  depreciation  to  which  it  led.  But  the  de- 
struction of  country-bank  paper  in  1814,  1815,  and  1816,  having,  by 
reducing  the  amount  of  currency,  raised  its  value  nearly  to  a  level  with 
that  of  gold,  the  legislature  was  able  to  revert  with  comparatively  little  diffi- 


174  Paper-Money. 

culty  to  the  old  standard.  The  act  for  this  purpose,  59  Geo.  III.  cap.  78, 
has  been  commonly  called  Peel's  bill,  from  its  having  been  introduced  and 
carried  through  parliament  by  Mr.  (now  Sir  Robert)  Peel.  To  facilitate 
the  return  to  specie  payments,  the  bank  was  authorized  in  the  first  instance, 
to  pay  in  bars  of  standard  bullion.  She,  however,  recommenced  payments 
in  coin  in  May,  1821,  and  has  since  continued  them  without  interruption. 


Bank-Notes  made  Legal  Tender  everyiuJtere  except  at  Vie  Bank. 

Having  already  given  some  account  of  the  derangements  of  the  currency 
in  1825-26,  and  in  1836-37,  it  is  needless  again  to  allude  to  them  here. 
When  the  charter  was  renewed  in  1833,  the  notes  of  the  Bank  of  England 
were  made  legal  tender  everywhere  except  at  the  bank.  Of  the  wisdom 
of  this  regulation  no  doubt  can  be  entertained.  Bank-notes  are  necessa- 
rily always  equivalent  to  bullion  ;  and  by  making  them  substitutes  for  coin 
at  country  banks,  the  demand  for  the  latter  during  periods  of  alarm  or  runs 
is  materially  diminished,  and  the  stability  of  the  bank  and  of  the  pecuniary 
system  of  the  country  proportionally  increased.  Since  1826,  the  bank  has 
established  branches  in  some  of  the  great  commercial  towns. 


Principle  on  which  the  Bank  endeavors  to  regulate  her  Conduct. 

The  principle  which  the  bank  endeavors  to  keep  in  view  in  conducting 
her  business  is,  that  she  should  so  manage  her  affairs  as  to  have  always  on 
hand  a  stock  of  coin  and  bullion  equal  to  a  third  part  of  her  liabilities ; 
that  is,  to  a  third  part  of  the  gross  amount  of  her  issues  and  deposits.  But 
in  practice,  she  is  obliged  frequently  to  depart  from  this  rule ;  and  we  have 
already  seen  that  the  circumstances  under  which  the  bank  is  placed,  in 
consequence  of  their  being  hundreds  of  rival  issuers,  are  such  as  to  make  it 
impossible  for  her  to  abide  constantly  by  any  system  in  the  regulation  of 
her  issues,  or  to  act  in  the  way  that  it  would  be  for  her  interest  as  well  as 
her  duty  to  act  were  she  the  sole  issuer  of  paper. 


Bank  of  England  in  connection  urith  the  Government. 

The  bank  of  England  transacts  the  whole  business  of  government.  "  She 
acts  not  only,"  says  Dr.  Smith,  "  as  an  ordinary  bank,  but  as  a  great  engine 
of  state.  She  receives  and  pays  the  greater  part  of  the  annuities  which 
are  due  to  the  creditors  of  the  public  ;  she  circulates  exchequer  bills  ;  and 
she  advances  to  the  government  the  annual  amount  of  the  land  and  malt 
taxes,  which  are  frequently  not  paid  till  some  years  thereafter."  Previously 
to  1834,  the  bank  received  about  £270,000  a  year  from  the  public  for  her 
trouble  in  managing  the  national  debt,  paying  dividends,  transfering  stock, 
etc.  But  the  act  renewing  the  charter  having  directed  that  £120,000 
should  be  deducted  from  this  charge,  it  now  amounts  to  about  £150,000 
a  year. 


Bank  of  England.  175 


rendered  by  the  Bank  to  the  Mercantile  Interests. 

The  greater  part  of  the  paper  of  the  bank  has  generally  been  issued  in 
the  way  of  advances  or  loans  to  government,  upon  the  security  of  certain 
branches  of  the  revenue,  and  in  the  purchase  of  exchequer  bills  and  other 
government  securities,  and  bullion.  But  her  issues  through  the  medium 
of  discounts  and  loans  to  individuals  have,  notwithstanding,  been  at  all  times 
considerable,  while  during  periods  of  distress  they  are  often  very  large. 
Generally  speaking,  however,  the  directors  do  not  think  it  advisable  to  en- 
ter into  competition  with  private  bankers  in  the  transacting  of  ordinary 
banking  business,  or  in  the  discounting  of  ordinary  mercantile  paper ;  and 
for  this  reason  the  interest  charged  by  them  is  usually  one  or  one  and  a 
half  per  cent,  higher  than  that  charged  by  private  bankers  and  dealers 
in  discounts.  When,  however,  any  circumstances  occur  to  occasion  a  pres- 
sure in  the  money  market,  the  market  rate  of  interest  immediately  rises  to 
the  rate  fixed  by  the  bank,  and  on  such  occasions  the  private  bankers  and 
the  public  generally  resort  to  her  for  aid.  She  then  becomes  as  it  were  a 
point  (fappui,  a  bank  of  support,  and  has  frequently  rendered  in  that 
capacity  essential  service,  as  in  the  famous  instances  of  1792-93,  1815-16, 
1825-26,  and  1836-37.  The  interference  of  the  bank  on  the  latter  occasion, 
in  propping  up  the  Northern  and  Central  Bank,  though  in  some  respects 
objectionable,  and  in  supporting  the  American  houses  till  they  got  their 
engagements  greatly  reduced,  no  doubt  averted  a  severe  pecuniary  crisis. 
.  The  Bank  of  England  allows  no  interest,  either  at  the  head  office  in 
London,  or  at  the  branches,  for  deposits.  She  is,  we  believe,  influenced  in 
this  respect  by  an  apprehension,  that  were  she  to  allow  interest,  she  might 
be  incumbered  with  too  great  an  accumulation  of  deposits,  which  it  might 
be  difficult  to  employ  advantageously,  and  which  in  a  period  of  alarm, 
might  endanger  her  security.  It  is  not  to  be  denied  that  there  is  great 
weight  in  these  considerations. 

The  dividends  on  bank  stock,  from  1767  to  the  present  time,  have  been : 
From  1767  to  1781,  five  and  a  half  per  cent,  per  annum  ;  from  1781  to 
1788,  six  per  cent.;  from  1788  to  1807,  seven  per  cent.;  from  1807  to  1823, 
ten  per  cent;  and  from  1823  to  the  present  time  (1838),  eight  per  cent. 
The  sums  paid  as  dividends,  are  exclusive  of  those  which  have  occasion- 
ally been  advanced  as  bonuses :  the  latter  amount,  since  1799,  to  £3,783,- 
780,  over  and  above  the  increase  of  the  bank's  capital  in  1816,  which 
amounted  to  £2,910,600. 


176 


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Joint- Stock  Banks.  !77 

CHAPTER  V. 

JOINT-STOCK   BANKS    OF    GREAT   BRITAIN. 

^  IT  will  be  unnecessary,  after  the  principles  laid  down  and  the  details 
given  in  the  previous  parts  of  this  article,  to  enter  at  any  considerable- 
length  into  an  examination  of  the  constitution  of  the  joint-stock  banks, 
which  combine  with  the  business  of  deposit  banks  that  of  banks  for  the 
issue  of  paper.  They  consist  of  bodies  or  partners,  varying  from  seven 
to  nearly  1500,  each  holding  one  or  more  shares  of  the  company's  stock  ; 
and  they  are  uniformly  managed  by  boards  of  directors  appointed  by,  and 
generally  responsible  to,  the  body  of  shareholders.  The  conditions  of  co- 
partnery  vary  materially  in  different  associations ;  but  the  above  are  dis- 
tinguishing features  common  to  them  all.  There  can  be  no  doubt  that 
several  of  these  banks  are  discreetly  managed,  possess  adequate  capital, 
and  afford  the  amplest  security  to  their  customers  and  the  public.  But  it 
is  very  doubtful  whether  this  can  be  truly  said  of  the  greater  number  of 
these  establishments.  The  shares  in  many  joint-stock  banks  are  very  small, 
few  being  above  £100,  the  greater  number  riot  exceeding  £50,  whilst  many 
are  only  £25,  and  some  not  more  than  £10,  and  even  £5 !  Generally,  too, 
it  is  understood,  or  rather  it  is  distinctly  set  forth  in  the  prospectus,  that 
not  more  than  five,  ten,  or  twenty  per  cent,  of  these  shares  is  to  be  called 
for,  so  that  an  individual  who  has  ten  or  twenty  shillings  to  spare  may  be- 
come a  shareholder  in  a  bank.  And,  owing  to  a  practice,  or  rather  a 
flagrant  abuse,  introduced  into  the  management  of  various  banks,  by  which 
they  make  large  advances  or  discounts  on  the  credit  of  the  stock  held  by 
the  shareholders,  not  a  few  individuals  in  doubtful  or  even  desperate  cir- 
cumstances take  shares  in  them,  in  the  view  of  obtaining  loans,  and 
bolstering  up  their  credit !  The  great  danger  arising  from  such  banks  is  obvi- 
ous ;  and  were  one  of  them  to  stop  payment,  it  is  plain,  eveji  though  the  claims 
on  it  should  be  ultimately  made  good,  that  they  could  be  so  only  at  the  cost, 
and  perhaps  ruin,  of  such  of  its  proprietors  as  had  abstained  from  the 
abusive  practices  resorted  to  by  others.  It  may  well,  indeed,  excite  aston- 
ishment, that  any  one  who  can  really  afford  to  make  a  bona  fide  purchase 
of  shares  in  a  bank  should  be  foolhardy  enough  to  embark  in  such  con- 
cerns. 

A  knowledge  of  the  circumstances  now  stated,  and  of  the  sort  of  agency 
by  which  certain  joint-stock  banks  have  been  established  and  conducted,* 
having  been  generally  diffused,  a  secret  committee  was  appointed  by  the 
House  of  Commons  in  1836,  to  inquire  into  the  operation  of  the  act  7  Geo. 
IV.  cap.  46,  permitting  the  establishment  of  joint-stock  banks  ;  and  whether 
it  was  expedient  to  make  any  alteration  in  its  provisions.  The  report  of 
this  committee,  and  of  a  second  committee  appointed  in  1837,  with  portions 
of  the  evidence  taken  before  them,  have  since  been  published,  and  confirm 

*  See  Edinburgh  Keview,  No.  128,  art.  6;  and  the  account*  of  the  Norwich  Bank, 
and  of  the  Northern  and  Central  Bank,  in  the  Reports  of  the  Committees  ol 
and  1837. 


178  Paper-Money. 

all  the  conclusions  of  those  who  had  contended  that  the  existing  system 
required  material  amendment.     The  committee  of  1836  stated,  that :  — 


Statements  by  the  Committee  of  1836. 

"  Subject  to  the  local  restrictions  imposed  for  the  protection  of  the  priv- 
ilege of  the  Bank  of  England,  it  is  open  to  any  number  of  persons  to  form 
a  company  for  joint-stock  banking,  whether  for  the  purpose  of  deposit,  or 
of  issue,  or  of  both. 

"  1.  The  law  imposes  on  the  joint-stock  banks  no  preliminary  obligation 
beyond  the  payment  of  a  license  duty,  and  the  registration  of  the  names 
of  shareholders  at  the  stamp-office. 

"  2.  The  law  does  not  require  that  the  deed  of  settlement  shall  be  consid- 
ered or  revised  by  any  competent  authority  whatever ;  and  no  precaution 
is  taken  to  enforce  the  insertion,  in  such  deeds,  of  clauses  the  most  obvious 
and  necessary. 

"  3.  The  law  does  not  impose  any  restrictions  upon  the  amount  of  nom- 
inal capital.  This  will  be  found  to  vary  from  £5,000,000  to  £100.000  ; 
and  in  one  instance  an  unlimited  power  is  reserved  for  issuing  shares  to  any 
extent. 

"  4.  The  law  does  not  impose  any  obligation  that  the  whole  or  any  cer- 
tain amount  of  shares  shall  be  subscribed  for  before  banking  operations 
commence.  In  many  instances  banks  commence  their  business  before  one 
half  of  the  shares  are  subscribed  for,  and  10,000,  20,000,  and  30,000  shares 
are  reserved  to  be  issued  at  the  discretion  of  the  directors. 

"5.  The  law  does  not  enforce  any  rule  with  respect  to  the  nominal 
amount  of  shares.  These  will  be  found  to  vary  from  £1,000  to  £5.  The 
effects  of  this  variation  are  strongly  stated  in  the  evidence. 

"  6.  The  law  does  not  enforce  any  rule  with  respect  to  the  amount  of 
capital  paid  up  before  the  commencement  of  business.  This  will  be  found 
to  vary  from  £105  to  £5. 

"  7.  The  law  does  not  provide  for  any  publication  of  the  liabilities  and 
assets  of  these  banks,  nor  does  it  enforce  the  communication  of  any  balance- 
sheet  to  the  proprietors  at  large. 

"  8.  The  law  does  not  impose  any  restrictions  by  which  care  shall  be 
taken  that  dividends  are  paid  out  of  banking  profits  only,  and  that  bad  or 
doubtful  debts  are  first  written  off. 

"  9.  The  law  does  not  prohibit  purchases,  sales,  and  speculative  traffic 
on  the  part  of  these  companies  in  their  own  stock,  nor  advances  to  be  made 
on  the  credit  of  their  own  shares. 

"  10.  The  law  does  not  provide  that  the  guarantee  fund  shall  be  kept 
apart  and  invested  in  government  or  other  securities. 

"11.  The  law  does  not  limit  the  number  of  branches,  or  the  distance  of 
such  branches  from  the  central  bank. 

"  12.  The  law  is  not  sufficiently  stringent  to  insure  to  the  public  that  the 
names  registered  at  the  stamp-office  are  the  names  of  persons  bona  fide 
proprietors,  who  have  signed  the  deed  of  settlement,  and  who  are  responsi- 
ble to  the  public. 

"  13.  The  provisions  of  the  law  appear  inadequate,  or  at  least  are  dis- 


Joint- Stock  Banks.  179 

regarded,  so  far  as  they  impose  upon  banks  the  obligation  of  makin*  their 
notes  payable  at  the  places  of  issue. 

« All  these  separate  questions  appear  to  your  committee  deserving  of 
the  most  serious  consideration,  with  a  view  to  the  future  stability  of  the 
banks  throughout  the  united  kingdom,  the  maintenance  of  commercial 
credit,  and  the  preservation  of  the  currency  in  a  sound  state." 

Remedial  Measures  that  should  be  adopted. 

"We  do  not,  however,  think  that  it  would  be  at  all  necessary  in  providing 
for  a  secure  system  of  joint-stock  banking,  to  make  any  regulations  with 
respect  to  many  of  the  points  noticed  by  the  committee,  as  to  which  the 
law  is  silent.  At  present,  every  partner  in  a  joint-stock  bank  is  liable  to 
the  public  for  the  whole  debts  of  the  firm  ;  and  this  may  be  truly  said  to 
be  the  saving  principle  of  the  system,  and  without  which  it  would  be  an 
unmixed  intolerable  evil.  No  individual  should,  however,  by  merely  with- 
drawing from  a  joint-stock  concern,  get  rid  of  his  liabilities  in  connection 
with  it.  To  prevent  fraud,  and  to  insure  due  caution,  these  ought  to  con- 
tinue for  a  period  of  three  years  at  least  after  he  has  publicly  withdrawn 
his  name.  The  public,  too,  are  clearly  entitled  to  know  the  partners  in 
joint-stock  associations,  that  is,  to  be  informed  who  the  individuals  are  with 
whom  they  are  dealing,  and  who  are  responsible  to  them.  But,  unluckily, 
no  effective  means  are  taken  for  supplying  the  public  with  this  necessary 
information,  and,  consequently,  of  properly  discriminating  between  one  es- 
tablishment and  another.  The  act  of  1333  (3  and  4  Will.  IV.  c.  83)  di- 
rected, as  previously  stated,  that  an  account  of  the  places  where  they  carry 
on  business,  and  of  the  names  and  residences  of  the  partners,  should  be 
quarterly  transmitted  to  the  stamp-office.  But  doubts  have  been  entertained 
as  to  the  correctness  of  these  returns,  and  comparatively  little  use  has  been, 
or  indeed  can  be,  made  of  them.  The  accounts  of  the  names  and  resi- 
dences of  the  proprietors  are  not  published ;  but  are  carefully  secluded 
from  the  public  eye,  in  the  repositories  of  Somerset  House !  It  is  true  that 
these  lists  may  be  seen  by  those  who  choose  to  apply  at  the  office,  for  a 
small  fee,  and  that  certified  copies  may  be  procured  at  no  great  expense. 
But  few  know  that  such  returns  exist,  and  still  fewer  have  the  opportunity 
or  think  of  availing  themselves  of  them  as  sources  of  information.  To 
render  them  of  any  real  utility,  they  should  be  brought  under  the  public 
eye,  by  being  hung  up  in  the  offices  of  the  banks  to  which  they  refer,  and 
periodically  published  in  the  newspapers  of  the  places  where  they  carry 
on  business.  By  this  means  the  public  would  know  exactly  to  whom 
they  had  to  look,  and  would  act  accordingly.  They  would  not  be  deceived, 
as  they  are  liable  to  be  at  present,  by  supposing  that,  because  a  bank  has  a 
number  of  partners,  some  of  them  must  be  opulent  and  trustworthy.  They 
would  know  the  precise  state  of  the  fact ;  and  if  it  were  seen  from  the 
quarterly  returns,  that  opulent  and  intelligent  individuals  were  withdraw- 
ing from  any  bank,  every  one  would  be  put  on  his  guard,  and  would  natu- 
raTly  conclude  that  the  parties  had  very  sufficient  reasons  for  quitting  the 
concern.  Thus  far  publicity  may  be  made  effectual,  and  would  be  of  the 
very  greatest  importance.  Neither  is  it  possible  to  allege  a  single  ulau.-U)le 


180  Paper-Money. 

objection  to  this  proposal.  It  interferes  in  no  degree,  nor  in  any  way,  with 
the  proceedings  of  the  parties ;  all  that  it  does  is  to  declare  who  and  what 
they  are,  and  to  this  degree  of  publicity  no  honest  man  will  object.  But 
we  have  great  doubts  whether  it  be  possible  to  carry  publicity  farther 
than  this.  The  committee  state,  that  "  the  law  does  not  provide  for  any 
publication  of  the  liabilities  and  assets  of  these  banks,  nor  does  it  enforce 
the  publication  of  any  balance-sheet  to  the  proprietors  at  large ; "  and  it 
has  been  proposed  to  compel  the  periodical  publication  of  a  statement  of 
this  sort.  But  it  is  very  questionable  whether  any  such  publication  would 
not  be  a  great  deal  worse  than  useless.  It  is  not  proposed  that  commis- 
sioners should  be  appointed  to  inspect  the  accounts  of  the  different  banks, 
and  to  see  that  the  returns  are  accurate.  This  would  be  too  inquisitorial, 
too  cumbrous,  and  too  costly  a  plan  to  be  thought  of  for  a  moment.  There 
would  be  nothing  for  it,  in  fact,  but  to  trust  entirely  to  the  honor  of  the 
parties.  Hence,  in  all  cases  in  which  a  disclosure  would  be  really  useful, 
the  publication  of  an  account  of  assets  and  liabilities  would  afford  the 
means  of  deceiving  the  public,  and  of  representing  a  bankrupt  concern  as 
being  in  a  prosperous  condition.  Supposing,  however,  that  the  parties 
were  in  all  instances  perfectly  honest,  still,  the  publication  of  a  balance- 
sheet  would  be  good  for  nothing.  Every  one  knows  how  sanguine  people 
are  in  relation  to  their  own  affairs ;  and  that  debts  and  obligations  which 
other  parties  would  hardly  reckon  worth  anything,  are  estimated  by  them 
as  if  they  were  so  much  bullion.  But,  independently  of  this,  the  futility  of 
the  thing  is  obvious.  A  bank  with  a  capital  of  £100,000  discounts  bills  and 
other  obligations  to  the  extent,  perhaps,  of  £300,000  or  £400,000 ;  the 
fact  that  it  has  discounted  them  shows  that  it  believes  these  bills  and  ob- 
ligations to  be  good ;  and  they  will,  consequently,  be  reckoned  amongst  its 
assets.  But  should  a  revulsion  take  place,  or  any  circumstance  occur  to 
shake  credit,  these  bills  may  not  be  worth  £100,000;  and  those  who  have 
dealt  with  the  bank  on  the  hypothesis  of  its  having  capital  and  assets  more 
than  enough  to  meet  all  its  obligations  will  find,  to  their  cost,  that  it  is  not 
possessed  of  a  single  shilling,  but  is,  on  the  contrary,  some  £200,000  or 
£300,000  worse  than  nothing. 

The  committee  seem  to  think  that  some  regulation  should  be  enacted, 
providing  that  a  certain  portion  of  its  capital  should  be  paid  up  before  a 
bank  begins  business.  But  we  incline  to  think  that  the  better  way  would  be 
to  prohibit  all  advertising  of  nominal  capitals  ;  and  to  enact  that  the  capital 
actually  paid  up,  whatever  its  amount,  shall  always  be  represented  as,  and 
held  to  be,  the  capital  of  the  bank.  But  although  such  a  regulation  were 
made,  there  would  be  no  security  that  the  capital  said  to  have  been  paid  up 
had  really  been  paid  into  the  coffers  of  the  bank,  or  that,  if  received,  it 
had  not  again  been  lent  out,  in  one  way  or  other,  to  the  partners.  Perhaps 
it  might  be  good  policy  to  enact  that  no  shares  should  be  issued  under  a 
certain  sum,  as  £50  ;  and  that  no  loans  should  be  made  to  the  partners  on 
the  credit  of  their  stock.  But  we  should  not  be  inclined  to  lay  much 
stress  on  the  former  regulation  ;  and  the  latter  might,  and  no  doubt  would, 
be  defeated  in  a  thousand  ways. 

We  are  decidedly  hostile  to  a  proposal  we  have  heard  made,  and  which 
seems  to  be  countenanced  by  the  committee,  for  obliging  all  banks  to  estab- 
lish a  guarantee  fund ;  that  is,  for  obliging  them  to  accumulate  a  portion 


Joint-Stock  Banks.  1S1 

of  their  profits  as  a  reserve  stock.  But  where  is  the  security  that  sucli 
reserve  would  be  always  deducted  from  the  profits  ?  The  truth  is,  that 
bankrupt  and  fraudulent  concerns,  and  none  else,  would  gain  by  such  a 
regulation  ;  inasmuch  as  it  would  enable  them,  by  appearing  to  be  prosper- 
ous, the  better  to  deceive  the  public,  and  to  blind  them  as  to  the  real  state 
of  their  affairs.  It  is  plainly  worse  than  absurd  to  teach  the  public  to  de- 
pend on  guarantees  that  cannot  be  enforced,  and  which  consequently  mus- 
be  good  for  nothing,  unless  it  be  to  tempt  to  and  conceal  fraud.  The  knowl- 
edge of  who  the  partners  are  in  a  bank,  and  their  unlimited  responsibility, 
are  the  only  securities  that,  speaking  generally,  are  worth  anything.  If 
these  cannot  protect  the  public  from  fraud  and  loss,  nothing  else  will ;  and 
the  question  will  come  to  be,  not  whether  the  system  should  be  reformed, 
but  whether  it  should  be  entirely  abolished. 

We  have  already  noticed  the  extraordinary  multiplication  of  branch- 
banks  all  over  the  country ;  and  it  is  not  very  difficult  to  discover  why 
banks  of  issue,  at  least,  are  so  very  anxious  about  the  establishment  of 
these  outworks.  They  are  bound,  it  seems,  by  the  present  law,  to  pay 
their  notes  only  at  the  parent  establishment ;  so  that,  by  issuing  them  at  a 
branch-bank,  perhaps  a  hundred  miles  distant  from  the  head  bank,  the 
chances  are  ten  to  one  that  they  will  continue  for  a  much  longer  period  iu 
circulation,  and  that  they  will  consequently  be  able  to  carry  on  business  with 
a  much  less  amount  of  capital,  than  if  they  were,  as  they  ought  to  be, 
obliged  to  pay  their  notes  at  the  branches  as  well  as  at  the  principal  office. 
It  is  obvious,  indeed,  that  the  convertibility  of  the  paper,  even  of  first-class 
banks,  into  either  cash  or  Bank  of  England  notes,  is  at  present  exceedingly 
imperfect ;  and  that  very  great  facilities  are  afforded  for  getting  the  worst  class 
of  notes  into  circulation,  and  for  keeping  them  afloat,  even  after  their  quality 
may  be  suspected.  This  defect  in  the  law  ought  undoubtedly  to  be  amended 
by  obliging  all  banks  that  issue  notes  to  pay  them  indifferently  at  any  of 
their  offices.  But  we  incline  to  think  that  parliament  might  go  farther 
than  this,  and  that  it  should  enact  that  no  branch  be  established,  whether 
for  the  issue  of  notes  or  otherwise,  beyond  a  certain  distance  (say  fifty 
miles)  from  the  head  office. 

Several  of  the  points  recapitulated  by  the  committee,  as  to  which  the 
law  is  silent,  respect  the  rights  and  interests  of  the  partners  in  joint-stock 
banks,  in  relation  to  each  other,  and  not  as  between  them  and  the  public. 
But  it  is  always  a  very  difficult  matter  to  interfere  to  dictate  the  footing  on 
which  parties  in  any  undertaking  should  stand  amongst  themselves.  Much 
should,  in  such  cases,  be  left  to  the  judgment  of  the  parties ;  and  public 
regulations,  if  enforced  at  all,  should  only  go  to  prevent  obvious  and  ac- 
knowledged abuse.  The  parties  may  in  most  cases  be  safely  left  to  take 
care  of  themselves.  The  protection  of  the  public  interest  is  the  paramount 
consideration ;  and  we  do  not  well  know  what  can  be  done  to  effect  this, 
in  the  case  at  least  of  such  banks  as  do  not  issue  notes,  other  than  the 
making  known  who  their  partners  are. 

The  committee,  like  the  manager  who  overlooked  the  part  of  the  prince 
in  casting  the  play  of  Hamlet,  have  omitted  all  reference  to  by  far  the  most 
important  matter  connected  with  their  inquiry,  —  the  suppression  of  the 
issues  of  private  and  joint-stock  banks.  Though  the  regulations  proposed 
or  hinted  at  by  the  committee  were  adopted,  and  were  as  effectual  as  they 


182  Paper-Money. 

are  sure  to  be  ineffectual  and  mischievous,  they  would  do  nothing  to  pre- 
vent those  oscillations  in  the  amount  and  value  of  money  inherent  in  a  cur- 
rency supplied  by  different  issuers,  and  which  periodically  overspread  the 
country  with  bankruptcy  and  ruin.  Even  the  exacting  of  security  for 
their  issues,  the  only  regulation  it  is  possible  to  adopt  in  regard  to  them 
which  can  be  of  any  real  value,  though  it  would  mitigate  their  violence, 
would  not  get  rid  of  these  destructive  fluctuations.  Nothing,  as  has  already 
been  fully  shown,  can  do  this  short  of  the  suppression  of  all  local  issues  ; 
and  all  schemes  for  the  improvement  of  banking  in  England  which  do  not 
proceed  on  this  assumption,  savor  more  of  quackery  and  delusion  than  of 
anything  else,  and  deserve  but  little  attention. 


CHAPTER  VI. 


THE   SCOTCH  BANKS. 

THE  act  of  1708,  preventing  more  than  six  individuals  from  entering 
into  a  partnership  for  carrying  on  the  business  of  banking,  did  not  ex- 
tend to  Scotland.  In  consequence  of  this  exemption,  several  banking  com- 
panies, with  numerous  bodies  of  partners,  have  always  existed  in  that  part 
of  the  empire.  The  Bank  of  Scotland  was  established  by  act  of  parliament 
in  1695.  By  the  terms  of  its  charter  it  enjoyed,  for  twenty-one  years,  the 
exclusive  privilege  of  issuing  notes  in  Scotland.  Its  original  capital  was 
only  £100,000.  But  it  was  increased  to  £200,000  in  1744,  and  now 
amounts  to  £1,500,000,  of  which  £1,000,000  has  been  paid  up. 

The  Royal  Bank  of  Scotland  was  established  in  1727.  Its  original  cap- 
ital was  £151,000.  At  present  it  amounts  to  £2,000,000,  which  has  been 
all  paid  up. 

The  British  Linen  Company  was  incorporated  in  1746,  for  the  purpose, 
as  its  name  implies,  of  undertaking  the  manufacture  of  linen.  But  the 
views  in  which  it  originated  were  speedily  abandoned,  and  it  became  a 
banking  company  only.  Its  paid-up  capital  amounts  to  £500,000. 

Exclusively  of  the  above,  there  are  two  other  chartered  banks  in  Scot- 
land ;  the  Commercial  Bank,  established  in  1810,  and  the  National  Bank 
of  Scotland,  established  in  1825.  The  former  has  a  paid-up  capital  of 
£600,000,  and  the  latter  of  £500,000. 

None  of  the  other  banking  companies  established  in  Scotland  are  char- 
tered associations  ;  and  the  partners  are  jointly  and  individually  liable  to 
the  whole  extent  of  their  fortunes  for  the  debts  of  the  firms.  Some 
of  them,  as  the  Aberdeen  Town  and  County  Bank,  the  Dundee  Com- 
mercial Bank,  the  Perth  Banking  Company,  etc.,  have  very  numerous 


The  Scotch  Banks.  183 

bodies  of  partners.  Generally  speaking,  they  have  been  eminently  suc- 
cessful. An  original  share,  £150,  of  the  stock  of  the  Aberdeen  Banking 
Company,  established  in  1767,  is  now  (1838)  worth  no  less  than  £2,oOo1 
Their  affairs  are  uniformly  conducted  by  a  board  of  directors  chosen  by 
the  shareholders. 

There  are  very  few  banks  with  less  than  six  partners  in  Scotland. 
Almost  all  the  great  joint-stock  banks  have  numerous  branches,  so  that 
there  is  hardly  a  town  or  village  of  any  consequence  without  two  or  more 
banks. 

The  Bank  of  Scotland  began  to  issue  one-pound  notes  as  early  as  1704, 
and  their  issue  has  since  been  continued  without  interruption.  With  only 
one  exception,  all  the  Scotch  banks  issue  notes  ;  and,  taking  their  aggregate 
circulation  at  from  £3,500,000  to  £4,000,000,  it  is  supposed  that  from 
£2,000,000  to  £2,500,000  consists  of  notes  for  £1.  In  1826,  it  was  proposed 
to  suppress  one-pound  notes  in  Scotland  as  well  as  in  England ;  but  the 
measure  having  been  strongly  objected  to  by  the  people  of  Scotland,  as 
being  at  once  oppressive  and  unnecessary,  was  abandoned. 


Reasons  for  the  few  Failures  among  Scotch  Banks. 

There  have  been  very  few  bankruptcies  among  the  Scotch  banks.  This 
superior  stability  is  to  be  ascribed  to  a  variety  of  causes ;  partly  to  the 
great  wealth  of  the  early  established  banks,  which  had  a  considerable  in- 
fluence in  preventing  an  inferior  class  of  banks  acquiring  any  hold  on  the 
public 'confidence;  partly  to  the  comparatively  little  risk  attending  the 
business  of  banking  in  Scotland ;  partly  to  the  facilities  afforded  by  the 
Scotch  law  for  attaching  a  debtor's  property,  whether  it  consist  of  land  or 
movables  ;  and  partly  and  principally,  perhaps,  to  the  fact  of  the  Scotch 
banks  being  but  indirectly  and  slightly  affected  by  a  depression  of  the 
exchange  and  an  efflux  of  bullion. 


Suppression  of  local  Notes  in  Scotland  unnecessary. 

The  circumstances  now  mentioned  render  it  unnecessary  to  enforce  that 
suppression  of  local  issues  in  Scotland,  which  is  so  indispensable  in  Eng- 
land, where  the  system  of  provincial  banking  is  of  a  very  inferior  descrip- 
tion, the  risk  attending  the  business  much  greater,  and  where  any  excess 
in  the  amount  of  the  currency  necessarily  occasions  a  fall  of  the  exchange 
and  a  demand  for  bullion.  The  commerce  and  population  of  Scotland  are 
too  limited,  and  that  country  is  too  remote  from  the  metropolis,  or  from  the 
centre  of  the  moneyed  world,  the  pivot  on  which  the  exchanges  turn,  to 
make  it  of  importance  that  her  currency  should  be  identical  with  that  of 
England  We  believe  that  the  Scotch  attach  much  more  importance  than 
it  deserves  to  the  issue  of  paper,  and  especially  to  the  issue  of  one-pound 
notes ;  still,  however,  we  do  not  think  that  the  circumstances  are  at  preMBt 
such  as  to  call  for  or  warrant  any  attempt  to  introduce  any  material  changes 
in  their  banking  system. 


184  Paper-Money. 

Deposits. 

All  the  Scotch  banks  receive  deposits,  even  of  the  low  amount  of  £10, 
and  allow  interest  on  them  at  from  one  to  two  per  cent,  below  the  market 
rate.  But  should  a  deposit  be  unusually  large,  as  from  £5,000  to  £10,000, 
a  special  agreement  is  usually  made  with  regard  to  it.  This  part  of  the 
system  has  been  particularly  advantageous.  It  in  fact  renders  the  Scotch 
banks  a  sort  of  savings'  banks  for  all  classes ;  and  their  readily  receiving 
all  sorts  of  deposits  at  a  reasonable  rate  of  interest,  has  tended  to  diifuse  a 
spirit  of  economy  and  parsimony  among  the  people  that  would  not  otherwise 
have  existed.  The  total  deposits  in  the  hands  of  the  Scotch  banks  are  be- 
lieved at  present  (1838)  to  exceed  £25,000,000,  of  which  fully  a  half  is 
understood  to  be  in  sums  of  from  £10  to  £200. 

Cash  Accounts. 

The  Scotch  banks  make  advances  in  the  way  of  discounts  and  loans,  and 
on  what  are  called  cash-credits,  or  cash  accounts.  By  the  latter,  are  meant 
credits  given  by  the  banks  for  specified  sums  to  individuals,  each  of  whom 
gives  a  bond  for  the  sum  in  his  account,  with  two  or  more  individuals  as 
sureties  for  its  payment.  Persons  having  such  accounts  draw  upon  them 
for  whatever  sums  within  their  amount  they  have  occasion  for,  repaying 
these  advances  as  they  find  opportunity,  but  generally  within  short  periods. 
Interest  is  charged  only  on  the  average  balance  which  may  be  found  due 
to  the  bank.  The  total  number  of  these  accounts  in  Scotland,  in  1826, 
was  estimated  at  about  12,000;  and  it  may  now,  perhaps,  be  taken  at 
about  14,000.  They  are  believed  to  average  about  £500  ;  few  are  for  less 
than  £100,  and  fewer  still  above  £5,000. 

It  has  been  contended,  and  by  no  less  an  authority  than  Adam  Smith, 
that  this  species  of  accommodation  gives  the  Scotch  merchants  and  traders 
a  double  command  of  capital.  "They  may  discount  their  bills  of  exchange," 
says  he,  "  as  easily  as  the  English  merchants,  and  have  besides  the  addi- 
tional conveniency  of  their  cash-accounts."  (  Wealth  of  Nations,  book  ii. 
cap.  2.)  But  this  is  an  obvious  error.  The  circulation  will  take  off  only 
a  certain  quantity  of  paper;  and  to  whatever  extent  it  may  be  issued 
by  means  of  cash-accounts,  so  much  the  less  can  be  issued  in  the  way  of 
discounts.  The  advantage  of  a  cash-account  does  not  really  consist  in  its 
enabling  a  banker  to  enlarge  his  advances  to  his  customers,  but  in  the  ex- 
treme facility  it  affords  of  making  them.  An  individual  who  has  obtained 
such  an  account  may  operate  upon  it  at  any  time  he  pleases,  and  by  drafts 
for  any  amount ;  an  advantage  he  could  not  enjoy  to  anything  like  the  same 
extent,  without  an  infinite  deal  of  trouble  and  expense,  were  the  loans  or 
advances  made  to  him  through  the  discounting  of  bills. 

The  Scotch  banks  draw  upon  London  at  twenty  days'  date.  This  is  de- 
nominated the  par  of  exchange  between  London  and  Edinburgh. 

The  following  table,  extracted  from  a  very  useful  publication  (Oliver 
and  Boytfs  Almanack,  for  1838),  exhibits  the  partners,  branches,  capital, 
prices  of  shares,  dividends,  etc.,  in  the  five  chartered  banks,  in  December, 
1837  ;  and  it  also  shows  the  aggregate  partners,  branches,  capital,  etc.,  of 
the  other  joint-stock  banks  then  existing  ha  Scotland. 


The  Irish  Banks. 


185 


Bank  of  Scotland.  .  . 
Royal  Bank  

Part. 

Bran. 

Paid-up 
Capital. 

DiTidend. 

Shares  Paid. 

Pres. 
Price. 

£ 
159 
161 

"* 

173   1 
16 

Rate  per 
Cent. 

Amount. 

Parable. 

672 
764 
164 

25 

7 
42 

£ 
1,000,000 
2,000,000 
600,000 

6 
51-2 
8 

Jt 

60,000 

liO.INIO 

40,000 

April  &  Oct. 
Jan.  &  July. 
June  &  Dec. 

Jan.  &  July. 
Ditto. 

£       B.    .1. 

83    6    8 
100    0    0 
100    0    0 

100    0    0 
10   0   0 

British  Linen  Co.  .  . 

Commercial  Bank.  . 
National  Bank  
Twelve  other  Joint- 
Stock  Co's  

1600 
521 
1238 

4128 

74 
48 
33 

72 

3,500.000 
600,000 
600,000 

1,937,700 

6 
6 
6 

6.04 

210,000 
36,000 
30,000 

116,996 

Total  

7487 

227 

6,537,700 

6.01 

392,985 

CHAPTER  VH. 


THE   IRISH   BANK. 

"  IN  no  country,  perhaps,"  says  Sir  Henry  Parnell,  "  has  the  issuing  of 
paper-money  been  carried  to  such  an  injurious  excess  as  in  Ireland.  A 
national  bank  was  established  in  1783,  with  similar  privileges  to  those  of 
the  Bank  of  England,  in  respect  to  the  restriction  of  more  than  six  part- 
ners in  a  bank  ;  and  the  injury  that  Ireland  has  sustained  from  the  repeat- 
ed failure  of  banks,  may  be  mainly  attributed  to  this  defective  regulation. 
Had  the  trade  of  banking  been  left  as  free  in  Ireland  as  it  is  in  Scotland, 
the  want  of  paper-money  that  would  have  arisen  with  the  progress  of  trade, 
would  in  all  probability  have  been  supplied  by  joint-stock  companies  sup- 
ported with  large  capitals,  and  governed  by  wise  and  effectual  rules. 

"  In  1797,  when  the  Bank  of  England  suspended  its  payments,  the  same 
privilege  was  extended  to  Ireland ;  and  after  this  period  the  issues  of  the 
Bank  of  Ireland  were  rapidly  increased.  In  1797,  the  amount  of  the  notes 
of  the  Bank  of  Ireland  in  circulation  was  £621,917  ;  in  1810,  £2,266,471, 
and  in  1814,  £2,986,999. 

"  These  increased  issues  led  to  corresponding  increased  issues  by  the 
private  banks,  of  which  the  number  was  fifty  in  the  year  1804.  The  con- 
sequence of  this  increase  of  paper  was  its  great  depreciation ;  the  price  of 
bullion  and  guineas  arose  to  ten  per  cent,  above  the  mint  price ;  and  the 
exchange  with  London  became  as  high  as  eighteen  per  cent,  the  par  being 
8J.  This  unfavorable  exchange  was  afterwards  corrected,  not  by  any  re- 
duction in  the  issues  of  the  Bank  of  Ireland,  but  by  the  depreciation  of 
the  British  currency  in  the  year  1810,  when  the  exchange  between 
London  and  Dublin  settled  again  at  about  par.  (See  article  EXCHANGE.) 

"  The  loss  that  Ireland  has  sustained  by  the  failure  of  banks  may  be  de- 
scribed in  a  few  words.  It  appears,  by  the  Report  of  the  Committee  on 
Irish  Exchanges  in  1804,  that  there  were  at  that  time  in  Ireland  fifty  reg- 
istered banks.  Since  that  year  a  great  many  more  have  been  established, 


186  Paper-Money. 

but  the  whole  have  failed,  one  after  the  other,  involving  the  country  from 
time  to  time  in  immense  distress,  with  the  following  exceptions :  First,  a  few 
that  withdrew  from  business ;  secondly,  four  banks  in  Dublin ;  thirdly,  three 
at  Belfast ;  and,  lastly,  one  at  Mallow.  These  eight  banks  with  the  new 
Provincial  Bank,  and  the  Bank  of  Ireland,  are  the  only  banks  now  (1827) 
existing  in  Ireland. 

"  In  1821,  in  consequence  of  eleven  banks  having  failed  nearly  at  the 
same  time,  in  the  preceding  year,  in  the  south  of  Ireland,  government  suc- 
ceeded in  making  an  arrangement  with  the  Bank  of  Ireland,  by  which  joint- 
stock  companies  were  allowed  to  be  established  at  a  distance  of  fifty  miles 
(Irish)  from  Dublin,  and  the  bank  was  permitted  to  increase  its  capital 
£500,000.  The  act  1  and  2  Geo.  IV.  c.  72,  was  founded  on  this  agreement. 
But  ministers  having  omitted  to  repeal  in  this  act  various  restrictions  on 
the  trade  of  banking  that  had  been  imposed  by  33  Geo.  II.  c.  14,  no  new 
company  was  formed.  In  1024,  a  party  of  merchants  of  Belfast,  wishing 
to  establish  a  joint-stock  company,  petitioned  parliament  for  the  repeal  of 
this  act  of  Geo.  II.;  and  an  act  was  accordingly  passed  in  that  session, 
repealing  some  of  its  most  objectionable  restrictions.  (5  Geo.  IV.  c.  73.) 

"  In  consequence  of  this  act,  the  Northern  Bank  of  Belfast  was  converted 
into  a  joint-stock  company,  with  a  capital  of  £500,000,  and  commenced 
business  on  the  first  of  January  1825.  But  the  restrictions  of  33  Geo.  H., 
and  certain  provisions  contained  in  the  acts  1  and  2  Geo.  III.,  and  5  Geo. 
IV.,  obstructed  the  progress  of  this  company,  and  they  found  it  necessary  to 
apply  to  government  to  remove  them ;  and  a  bill  was  accordingly  intro- 
duced, which  would  have  repealed  all  the  obnoxious  clauses  of  the  33d 
Geo.  II.,  had  it  not  been  so  altered  in  the  committee  as  to  leave  several  of 
them  in  force.  In  1825,  the  Provincial  Bank  of  Ireland  commenced  bus- 
iness with  a  capital  of  £2,000,000 ;  and  the  Bank  of  Ireland  has  of  late 
established  branches  in  all  the  principal  towns. 

"  The  losses  that  have  been  sustained  in  Ireland  by  abusing  the  power 
of  issuing  paper  have  been  so  great,  that  much  more  is  necessary  to  be 
done  by  way  of  protecting  the  public  from  future  loss,  than  the  measure 
proposed  last  session  (1826)  by  ministers,  of  abolishing  small  notes,  and  the 
measure  already  adopted,  of  allowing  joint-stock  companies  to  be  establish- 
ed in  the  interior  of  the  country.  As  the  main  source  of  the  evil  consists 
in  the  interference  of  the  law  in  creating  a  national  bank  with  exclusive 
privileges,  the  first  step  that  ought  to  be  taken  for  introducing  a  good 
system  into  Ireland,  is  the  getting  rid  of  such  a  bank,  and  opening  the  trade 
of  banking  in  Dublin.  The  next  measure  should  be  the  requiring  of  each 
bank  to  give  security  for  the  amount  of  paper  that  is  issued  ;  for  after  the 
experience  of  the  ignorance  with  which  the  Irish  banks  have  conducted 
their  business,  and  the  derangement  of  the  natural  course  of  the  trade,  by 
the  long  existence  of  the  Bank  of  Ireland,  it  would  be  unwise  to  calculate 
upon  a  sound  system  of  banking  speedily  supplanting  that  which  has  been 
established. 

"  Under  the  circumstances  in  which  Ireland  is  placed,  nothing  would  so 
much  contribute  to  her  rapid  improvement  in  wealth,  as  the  introducing  of 
the  Scotch  plan  of  cash  credits,  and  of  paying  interest  on  deposits.  By 
cash  credits,  the  capital  which  now  exists  would  be  rendered  more  efficient, 
and  the  paying  of  interest  on  small  deposits,  would  lead  to  habits  of  econ- 
omy, and  to  the  more  raoid  accumulation  of  new  capital. 


The  Irish  Banks. 


187 


«  The  charter  of  the  Bank  of  Ireland  has  still  to  run  till  the  year 
1838."  (Observations  on  Paper-Money,  etc^  by  Sir  Henry  Paraell,  pp. 

Since  Sir  Henry  Parnell  published  the  valuable  pamphlet  from  which 
we  have  taken  the  foregoing  extract,  several  joint-stock  banking  companies 
have  been  founded  in  Ireland.  The  provincial  Bank,  to  which  Sir  Henry 
alludes,  has  a  paid-up  capital  of  £500,000,  and  has  been  well  and  profitably 
managed.  But  others  have  been  less  fortunate.  The  Agricultural  and 
Commercial  Bank  of  Ireland,  established  in  1834,  with  2,170  partners,  a 
paid-up  capital  of  £352,790,  and  many  branches,  stopped  payment  during 
the  pressure  in  November,  1836,  and  by  doing  so  involved  many  persons 
in  great  distress.  It  would  appear  from  the  statement  of  the  auditors  ap- 
pointed to  audit  the  accounts,  etc.,  of  this  bank,  given  in  the  Appendix  to  the 
Commons'  Report  of  1837,  that  it  had,  to  say  the  least,  been  very  ill  man- 
aged. "  We  have  found,"  say  the  auditors,  « that  there  was  no  efficient  con- 
trol over  the  branches,  and  that  the  system  of  inspection  was  most  imperfect. 
A  complete  absence  of  plan  for  checking  the  accounts  existed  at  the  head 
office  in  Dublin ;  and  the  book-keeping  has  been  so  faulty,  that  we  are  con- 
vinced no  accurate  balance-sheet  could  at  any  time  have  been  constructed. 
We  have  looked  in  vain  for  an  account  of  '  outfit,'  or  of  *  premiums'  re- 
ceived ;  and  we  must  add,  that  the  personal  accounts  at  the  head  office 
require  a  diligent  and  searching  revision." 

More  than  half  of  the  existing  Irish  joint-stock  banks,  amounting  to 
eighteen,  were  established  in  1836  and  1837.  It  is  to  be  hoped  that  these 
establishments  will  take  warning  by  the  disasters  in  which  the  Agricultural 
Bank  has  been  involved,  and  adopt  a  safer  course.  But  if  the  power  to 
issue  paper-money  be  continued  to  these  establishments,  it  is  clear  that  no 
time  should  be  lost  in  compelling  them  to  give  security  for  its  payment 
Unless  this  measure  be  enforced,  or  the  issues  be  entirely  suppressed,  we 
run  little  risk  in  affirming  that  Ireland  has  not  seen  either  the  last  or  most 
severe  of  those  violent  oscillations  in  the  amount  and  value  of  money 
which  produce  so  much  bankruptcy  and  ruin. 

The  capital  of  the  Bank  of  Ireland  amounts  to  £2,769,230.  The  rate 
of  dividend  from  1830  to  1836  was  nine  per  cent.;  in  1836,  it  was  eight 
and  a  half  per  cent.  The  charter,  which  expires  in  the  course  of  the 
present  year,  has  not  as  yet  been  renewed.  It  is  almost  needless  to  add, 
that  there  is  no  room  or  ground  whatever  for  the  continuance  of  the  exclu- 
sive privilege  the  Bank  of  Ireland  has  hitherto  enjoyed.  We  subjoin  an 

Account  showing  the  Circulation  of  the  Bank  of  Ireland  from  1823  to  1836, 

both  inclusive. 


Yrs. 


1823 
1824 

1825 
1826 
1827 

1828 
1829 


Large 

Notes. 


£ 

1,827,700 
1,938,200 
1,969,300 
1,502,700 
1,460,300 
1,540,200 
1,615,200 


Small 
Notes. 


£ 

1,383,600 
1,451,600 
1,677,500 
2,644,200 
1,491,800 
1,668.800 


Post 
Bills. 


Total  Arer. 
Circulation 


£ 
1.859,100 


1.7f,S.IK>0 

1,411,300 
1,375,900 
1,362,700 


£ 

5,070,500 

r,.r,7!t,7"° 


4,905,000 
4,363,600 

-- 


Trs. 


1830 


ls:;t 
IS.T, 


Large 

Notes. 


U8&600 

1,684,400 
1,000,600 


1,623,400 

moo 


Small 
Notes. 


£ 
1.886400 


1219,000 

1,472.300 
1,363,300 
1^40,800 
1/187(400 


Post 
Bill*. 


I  Total  ATer. 
i  tendvJi  -i 


£ 

1,147,700 
1,036,000 
1,038,900 


8«2,700 
768,600 
638,200 


8,918,000 
4,068,100 
4,016,600 
3,634,600 
8.638,900 
8,429,800 


188  Paper-Xoney. 


CHAPTER  VHI. 


FOREIGN   BANKS. 

IT  would  far  exceed  our  limits  to  enter  into  any  detailed  statements  with 
respect  to  the  banks  and  banking  systems  of  foreign  countries ;  we  shall, 
therefore,  confine  ourselves  to  a  brief  notice  of  such  banks  as  have  been 
most  celebrated,  or  are  at  present  of  the  greatest  importance. 


Bank  of  Venice. 

The  Bank  of  Venice  was  the  most  ancient  bank  in  Europe.  Neither 
its  date  nor  the  circumstances  which  led  to  its  establishment  are  exactly 
known.  Historians  inform  us  that  in  1171,  the  republic,  being  hard 
pressed  for  money,  levied  a  forced  contribution  on  the  richest  citizens,  giving 
them  in  return  a  perpetual  annuity  at  the  rate  of  four  per  cent.  An  office 
was  established  for  the  payment  of  this  interest,  which,  in  the  sequel,  be- 
came the  Bank  of  Venice.  This  might  be  effected  as  follows  :  The  inter- 
est on  the  loan  to  government,  being  paid  punctually,  every  claim  register- 
ed in  the  books  of  the  office  would  be  considered  as  a  productive  capital ; 
and  these  claims,  or  the  right  of  receiving  the  annuity  accruing  thereon, 
must  soon  have  been  transferred,  by  demise  or  cession,  from  one  person  to 
another.  This  practice  would  naturally  suggest  to  holders  of  stock  the 
simple  and  easy  method  of  discharging  their  mutual  debts  by  transfers  on 
the  office  books,  and,  as  soon  as  they  became  sensible  of  the  advantages 
to  be  derived  from  this  method  of  accounting,  bank-money  was  invented. 

The  Bank  of  Venice  was  essentially  a  deposit  bank.  Though  estab- 
lished without  a  capital,  its  bills  bore  at  all  times  an  agio,  or  premium, 
above  the  current  money  of  the  republic.  The  invasion  of  the  French,  in 
1797,  occasioned  the  rum  of  this  establishment. 


Bank  of  Amsterdam. 

The  Bank  of  Amsterdam  was  founded  in  1609,  on  strictly  commercial 
principles  and  views,  and  not  to  afford  any  assistance,  or  to  commix  with 
the  finances  of  the  state.  Amsterdam  was  then  the  great  entrepot  of  the 
commerce  of  the  world,  and  of  course  the  coins  of  all  Europe  passed  cur- 
rent in  it.  Many  of  them,  however,  were  so  worn  and  defaced  as  to  re- 
duce their  general  average  value  to  about  nine  per  cent,  less  than  their 
mint  value  ;  and,  in  consequence,  the  new  coins  were  immediately  melted 
down  and  exported.  The  currency  of  the  city  was  thus  exposed  to  great 
fluctuations ;  and  it  was  chiefly  to  remedy  this  inconvenience,  and  to  fix  the 
value  or  par  of  the  current  money  of  the  country,  that  the  merchants  of 
Amsterdam  established  "  a  bank  "  on  the  model  of  that  of  Venice.  Its 
first  capital  was  formed  of  Spanish  ducats,  or  ducatoons,  a  silver  coin  which 


Foreign  Banks.  180 

Spain  had  struck  in  the  war  with  Holland,  and  with  which  the  tide  of  com- 
merce had  enriched  the  country  it  was  formed  to  overthrow  !  The  bank 
afterwards  accepted  the  coins  of  all  countries,  worn  or  new,  at  their  intrin- 
sic value,  and  made  its  own  bank-money  payable  in  standard  coin  of  the 
country,  of  full  weight,  deducting  a  "  brassage  "  for  the  expense  of  coin- 
age, and  giving  a  credit  on  its  books,  or  "  bank-money,"  for  the  deposits. 

The  Bank  of  Amsterdam  professed  not  to  lend  out  any  part  of  the  specie 
deposited  with  it,  but  to  keep  in  its  coffers  all  that  was  inscribed  on  its 
books.  In  1672,  when  Louis  XIV.  penetrated  to  Utrecht,  almost  every 
one  who  had  an  account  with  the  bank  demanded  his  deposit,  and  these 
were  paid  off  so  readily,  that  no  suspicion  could  exist  as  to  the  fidelity  of 
the  administration.  Many  of  the  coins  then  brought  forth,  bore  marks  of 
the  conflagration  which  happened  at  the  H6tel  de  Ville,  soon  after  the 
establishment  of  the  bank.  This  good  faith  was  maintained  till  about  the 
middle  of  the  last  century,  when  the  managers  secretly  lent  part  of  their 
bullion  to  the  East  India  Company  and  government.  The  usual  "  oaths 
of  office  "  were  taken  by  a  religious  magistracy,  or  rather  by  the  magis- 
tracy of  a  religious  people,  that  all  was  safe ;  and  the  good  people  of 
Holland  believed,  as  an  article  of  their  creed,  that  every  florin  which  circu- 
lated as  bank-money,  had  its  metallic  constituent  in  the  treasury  of  the 
bank,  sealed  up,  and  secured  by  oaths,  honesty,  and  good  policy.  This 
blind  confidence  was  dissipated  in  December,  1790,  by  a  declaration  that 
the  Bank  would  retain  ten  per  cent,  of  all  deposits,  and  would  return  none 
of  a  less  amount  than  2,500  florins. 

Even  this  was  submitted  to  and  forgiven.  But  four  years  afterwards, 
on  the  invasion  of  the  French,  the  bank  was  obliged  to  declare  that  it  had 
advanced  to  the  States  of  Holland  and  West  Friesland,  and  the  East  India 
Company,  more  than  10,500,000  florins,  which  sum  they  were  unable  to 
make  up  to  their  depositors,  to  whom,  however,  they  assigned  their  claims 
on  the  States  and  the  Company.  Bank-money,  which  previously  bore  an 
agio  of  five  per  cent.,  immediately  fell  to  sixteen  per  cent,  below  current 
money. 

This  epoch  marked  the  fall  of  an  institution  which  had  long  enjoyed  an 
unlimited  credit,  and  had  rendered  the  greatest  services.  The  amount  of 
the  treasure  in  the  vaults  of  the  bank,  in  1755,  was  estimated  by  Mr. 
Hope  at  33,000,000  of  florins.  (Storch,  Cows  ^Economic  Politique,  torn,  iv.) 


Sank  of  Hamburg. 

The  Bank  of  Hamburg  was  established  in  1619,  on  the  model  of  that  of 
Amsterdam.    It  is  a  deposit  bank,  and  its  affairs  are  managed  according  to 
a  system  that  insures  the  fullest  publicity.    It  receives  no  deposits  in  coin, 
but  only  in  bullion  of  a  certain  degree  of  fineness.  It  charges  itself  with  the 
bullion  at  the  rate  of  442  schillings  the  mark,  and  issues  at  the  rate  of  444 
schillings,  being  a  charge  of  four-ninths,  or  nearly  one-half  per  cent,  for 
its  retention.    It  advances  money  on  jewels  to  three-fourths  ot 
value.     The  city  is  answerable  for  all  pledges  deposited  with  the  bank  ; 
they  may  be  sold  by  auction  if  they  remain  one  year  and  six  weeks  w 
out  any  interest  being  paid.    If  the  value  be  not  claimed  within  three 


190  Paper-Money. 

years,  it  is  forfeited  to  the  poor.     This  bank  is  universally  admitted  to  be 
one  of  the  best  managed  in  Europe. 

Bank  of  France. 
!s>4,    f-j  evn/fC~*9    AHiw*  A/yiW    C?t^»s-iu 

The  Bank  of  France  was  founded  in  1803.  The  exclusive  privilege  of  issu- 
ing notes  payable  to  bearer  was  granted  to  it  for  40  years.  The  capital  of  the 
bank  consisted  at  first  of  45,000,000  francs,  but  it  was  subsequently  increased 
to  90,000,000  francs,  divided  into  90,000  shares,  or  actions,  of  1,000  francs 
each.  Of  these  shares,  67,900  are  in  the  hands  of  the  public  ;  22,100,  being 
purchased  up  by  the  bank,  form  part  of  her  capital.  The  notes  issued  by 
the  bank  are  for  1,000  and  500  francs.  The  dividend  varies  from  six  to  ten 
and  a  half  per  cent.,  the  latter  being  its  amount  in  1837 ;  and  there  is,  be- 
sides, a  reserve  retained  from  the  profits  which  is  vested  in  the  five  per  cents. 
A  bonus  of  200  francs  a  share  was  paid  out  of  this  reserve  to  the  shareholders 
in  1820.  No  bills  are  discounted  that  have  more  than  three  months  to  run. 
The  customary  rate  of  discount  is  four  per  cent.,  but  it  varies  according  to 
circumstances.  The  discounts  in  1834  amounted  to  306,603,000  francs,  but 
they  vary  materially  from  year  to  year,  and  are  sometimes  more  than  double 
this  amount.  The  bank  is  obliged  to  open  a  compte  courant  for  every  one 
who  requires  it ;  and  performs  services  for  those  who  have  such  accounts, 
similar  to  those  rendered  by  the  private  banks  of  London  to  their  custom- 
ers. She  is  not  allowed  to  charge  any  commission  upon  current  accounts, 
so  that  her  only  remuneration  arises  out  of  the  use  of  the  money  placed  in 
her  hands  by  the  individuals  whose  payments  she  makes.  This  branch  of 
the  business  is  said  not  to  be  profitable.  There  are  about  1,600  accounts 
current  at  the  bank ;  and  of  the  entire  expenses  of  the  establishment, 
amounting  to  about  900,000  francs  a  year,  two-thirds  are  said  to  be  incurred 
in  this  department.  The  bank  advances  money  on  pledges  of  different 
kinds,  such  as  foreign  coin  or  bullion,  government  or  other  securities,  etc. 
It  also  undertakes  the  care  of  valuable  articles,  as  plate,  jewels,  bills,  title- 
deeds,  etc.  The  charge  is  one-eighth  per  cent,  of  the  value  of  each  deposit 
for  every  period  of  six  months  or  under.  The  average  circulation  of  bank 
notes  in  1834  was  207,321,000  francs,  the  price  of  a  share  of  the  bank's  stock 
on  the  8th  of  January,  1838,  was  2,555  francs,  a  proof  that  its  condition  is 
believed  to  be  eminently  flourishing. 

The  administration  of  the  bank  is  vested  in  a  council  general  of  twenty 
members,  viz.  seventeen  regents,  and  three  censors,  who  are  nominated  by 
two  hundred  of  the  principal  proprietors.  The  king  appoints  the  governor 
and  deputy  governor.  The  first  must  be  possessed  of  an  hundred  and  fifty, 
and  the  latter  of  fifty  shares.  A  compte  rendu  is  annually  published,  and 
a  report  by  the  censors,  which  together  give  a  very  full  exposition  of  the 
affairs  of  the  bank.  The  institution  is  flourishing,  and  enjoys  unlimited 
credit.  (For  further  details  with  respect  to  the  Bank  of  France,  see 
Storch,  Cours  d'Economie  Politigue,  Paris,  1823,  torn.  iv.  pp.  168-180 ;  and 
the  Comptes  Bendus  of  the  different  years.) 

For  further  information  as  to  continental  banks  and  paper-money,  the 
reader  is  referred  to  the  interesting  chapter  on  that  subject  in  the  fourth 
volume  of  the  Cours  d'Economie  Politique  of  M.  Storch,  and  to  M'Cul- 
loch's  Commercial  Dictionary. 


Banking  in  the  United  States. 


CHAPTER  IX. 


BANKING   IN   THE   UNITED    STATES. 

THE  system  of  banking  in  the  United  States  has  recently  attracted  a 
great  deal  of  attention  in  this  country.  The  Bank  of  the  United  States 
was  incorporated  by  Congress  in  1816,  with  a  capital  of  35,000,000  dol- 
lars, for  the  issue  of  notes  and  the  transacting  of  ordinary  banking  business. 
Its  head  office  was  in  Philadelphia,  but  it  had  branches  that  carried  on  an 
extensive  business  in  most  considerable  towns  of  the  Union.  The  charter 
was  limited  to  twenty  years'  duration  ;  and  the  question,  whether  it  should 
be  renewed,  was  debated  with  extraordinary  vehemence  in  all  parts  of 
America.  The  late  president,  General  Jackson,  was  violently  opposed  to 
the  reincorporating  of  the  Bank,  and  rejected  a  bill  for  that  purpose,  that 
had  been  sanctioned  by  the  other  two  branches  of  the  legislature.  A  ma- 
jority of  congress  having  come  round  to  the  president's  views,  the  charter 
was  allowed  to  expire.  It  has  since,  however,  received  a  new  charter  from 
the  State  of  Pennsylvania.  But  this  merely  enables  it  to  carry  on  business 
in  that  State ;  though  it  may  obtain,  and  has  in  fact  already  obtained, 
leave  from  some  of  the  other  States  to  establish  branches  within  their  limits. 
It  is,  however,  no  longer  a  national  or  government  bank ;  but  it  is  now,  as 
formerly,  the  first  moneyed  institution  of  the  new  world,  and  hi  this  respect, 
indeed,  is  second  only  to  the  Bank  of  England. 

"We  cannot  help  thinking  that  the  American  government  acted  through- 
out the  whole  of  this  affair  on  the  most  erroneous  views.  Banking  hi 
America  is,  if  possible,  in  a  still  worse  condition  than  hi  England  ;  and 
there  can  hardly  be  a  doubt  that  the  establishment  of  the  Bank  of  the 
United  States  was  of  signal  service  to  the  republic,  by  affording  a  currency 
of  undoubted  solidity,  readily  accepted  in  all  parts  of  the  Union,  and  by 
its  operating  as  a  salutary  check  on  the  conduct  of  other  banks.  General 
Jackson,  and  the  party  of  which  he  was  the  head,  have,  or  affect  to  have,  a 
great  horror  of  paper-money.  But  it  would  be  practising  too  much  on  the 
patience  of  our  readers,  were  we  to  endeavor  to  prove  by  argument  the 
great  utility,  not  to  say  necessity,  of  a  paper  currency  of  some  sort  or  other, 
to  all  great  commercial  countries  like  the  United  States.  To  suppose  that 
it  should  be  altogether  dispensed  with,  is  as  absurd  as  it  would  be  to  suppose 
that  they  should  dispense  with  their  unproved  roads  and  carriages.  A 
wise  statesman  should  not  attempt  to  suppress  what  is  indispensable,  but 
should  exert  himself  to  obviate  its  defects,  and  to  make  it  as  suitable  as  it 
can  be  made  to  the  objects  in  view.  This,  however,  General  Jackson  and 
his  party  have  not  done.  On  the  contrary,  they  declared  war  against  the 
only  unexceptionable  bank  in  the  Union,  and  to  injure  it  gave  full  scope 
to  the  rest.  Hence,  instead  of  obviating  any  one  of  the  gross  defects  in- 
herent in  the  existing  banking  system,  the  proceedings  of  General  Jackson 
have  aggravated  and  multiplied  them  in  no  common  degree ;  and  it  is 
now  infected  with  every  vice  that  it  seems  possible  can  belong  to  banking. 

The  American  banks  are  all  joint-stock  associations.    But  instead  of  the 


192  Paper-Money. 

partners  being  liable,  as  in  England,  for  the  whole  amount  of  the  debts  o\ 
the  banks,  they  are  in  general  liable  only  for  the  amount  of  their  shares, 
or  for  some  fixed  multiple  thereof.  It  is  needless  to  dwell  on  the  tempta- 
tion to  commit  fraud  held  out  by  this  system,  which  has  not  a  single  coun- 
tervailing advantage  to  recommend  it.  The  worthlessness  of  the  plan  on 
which  the  banks  were  founded  was  evinced  by  the  fact,  that  between  1811 
and  the  1st  of  May,  1830,  no  fewer  than  a  hundred  and  sixty-five  banks 
became  altogether  bankrupt,  many  of  them  paying  only  an  insignificant 
dividend ;  and  this  exclusive  of  a  much  greater  number  that  stopped  for 
a  while,  and  afterwards  resumed  payments.  The  wide-spread  mischief  re- 
sulting from  such  a  state  of  things  has  led  to  the  devising  of  various  com- 
plicated schemes  for  insuring  the  stability  and  prudent  management  of 
banks  ;  but  as  they  all  involve  regulations  which  it  is  impossible  to  enforce, 
they  are  practically  worse  than  useless.  In  Massachusetts,  for  example,  it 
is  provided  that  no  bank  for  the  issue  of  notes  can  go  into  operation  in  any 
way,  until  at  least  half  its  capital  stock  be  paid  in  gold  and  silver  into  the 
bank,  and  be  actually  existing  in  its  coffers,  and  seen  in  them  by  inspectors 
appointed  for  that  purpose ;  and  the  cashier  of  every  bank  is  bound  to 
make  specific  returns  once  a  year  of  its  debts  and  assets,  on  being  required 
to  do  so  by  the  Secretary  of  State.  But  our  readers  need  hardly  be  told, 
that  these  elaborately  contrived  regulations  are  really  good  for  nothing, 
unless  it  be  to  afford  an  easy  mode  of  cheating  and  defrauding  the  public. 
Instances  have  occurred  of  banks  having  borrowed  an  amount  of  dollars 
equal  to  half  their  capital  for  a  single  day,  and  of  such  dollars  having  been 
examined  by  the  inspectors  appointed  for  that  purpose,  and  reported  by 
them,  and  sworn  by  a  majority  of  the  directors,  to  be  the  first  instalment 
paid  by  the  stockholders  of  the  bank,  and  intended  to  remain  in  it.  ( Gouge's 
Paper-Money  and  Banking  in  the  United  States,  part  ii.  p.  157.)  We  do 
not  of  course  imagine  that  such  disgraceful  instances  can  be  of  common 
occurrence  ;  but  what  is  to  be  thought  of  a  system  which  permits  a  company 
for  the  issue  of  paper-money,  founded  on  such  an  abominable  fraud,  to  en- 
ter on  business  with  a  sort  of  public  attestation  of  its  respectability  ?  The 
publicity,  too,  to  which  the  American  banks  are  subject  is  injurious  rather 
than  otherwise.  Those  who  are  so  disposed  may  easily  manufacture  such 
returns  as  they  think  most  suitable  to  their  views  ;  and  the  more  respecta- 
ble banks  endeavor,  for  a  month  or  two  previously  to  the  period  when  they 
have  to  make  their  returns,  to  increase  the  amount  of  bullion  in  their  cof- 
fers, by  temporary  loans  and  all  manner  of  devices.  The  whole  system  is, 
in  fact,  bottomed  on  the  most  vicious  principles.  But  it  is  unnecessary, 
after  what  occurred  in  1836  and  1837,  to  insist  further  upon  the  gross  and 
glaring  defects  of  American  banking.  Perhaps  no  instance  is  to  be  found 
in  the  history  of  commerce,  of  such  a  wanton  over-issue  of  paper  as  took 
place  in  the  United  States  in  1835  and  1836.  The  result  is  known  to 
every  body  ;  the  revulsion  to  which  this  over-issue  necessarily  led  having, 
in  May,  1837,  compelled  every  bank  in  the  Union,  without  we  believe  a 
single  exception,  to  stop  payments. 

Owing  to  the  privilege  claimed  by  the  different  States,  and  exercised 
without  interruption  from  the  Revolution  downwards,  it  is,  we  fear,  impos- 
sible to  effect  the  suppression  of  local  paper  in  America,  or  to  establish  a 
paper  currency  which  should  at  all  times  vary  in  amount  and  value,  as 


Banking  in  the  United  States.  193 

if  it  were  metallic.  But  the  States  have  it  in  their  power  to  do  that  which 
is  next  best ;  they  may  compel  all  banks  which  issue  notes  to  give 
security  for  their  issues.  This,  though  it  would  not  prevent  destructive 
oscillations  in  the  amount  and  value  of  the  currency,  would,  at  all  events, 
prevent  those  ruinous  and  ever-recurring  stoppages  and  bankruptcies  of 
the  issuers  of  paper-money,  that  render  the  American  banking  system  one 
of  the  severest  scourges  to  which  any  people  was  ever  subjected.  Com- 
mon sense  and  experience  alike  demonstrate  the  inefficacy  of  all  the  regu- 
lations enacted  by  the  American  legislature  to  prevent  the  abuse  of  bank- 
ing. It  is  in  vain  for  them  to  lay  it  down  that  the  issues  shall  never  exceed 
a  certain  proportion  of  the  capital  of  the  bank,  etc.  Such  regulations  are 
all  very  well,  provided  the  banks  choose  to  respect  them ;  but  there  are 
no  means  whatever  of  insuring  their  observance  ;  and  their  only  effect  is 
to  make  the  public  look  for  protection  and  security  to  what  is  altogether 
impotent  and  worthless  for  any  good  purpose.  The  suppression  of  local 
issues  is  indispensable,  in  order  to  make  a  paper  currency  what  it  ought  to 
be.  If,  however,  this  be  impossible  in  America,  there  is  nothing  left  but 
to  take  security  from  the  issuers  of  notes.  All  schemes  for  the  improve- 
ment of  banks,  by  making  regulations  as  to  the  proportion  of  their  issues, 
and  advances  to  their  bullion,  capital,  etc.,  are  downright  delusion  and 
quackery. 


194 


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*  a 


New  Work  on  Banking.  1 

LAWSON'S  EARLY  HISTORY  OF  BANKING. 


Contained  in  the  Bankers'  Magazine,  1851  -  52. 


THE  HISTORY  OF  BANKING  ;  WITH  A  COMPREHENSIVE  ACCOUNT  OF  THE 
ORIGIN,  RISE,  AND  PROGRESS  OF  THE  BANKS  OF  ENGLAND,  IRELAND, 
AND  SCOTLAND.  By  WILLIAM  JOHN  LAWSON.  London  :  Richard 
Bentley. 

WITHIN  the  last  few  years,  and  even  since  the  establishment  of  our  Magazine,  the  literature  of  bank- 
ing has  assumed  a  different  character  from  that  which  it  previously  presented.  The  race  of  currency 
essayists  has  given  place  to  the  historians  and  statists.  We  are  no  longer  inundated  by  pamptilels  on 
the  national  debt  and  new  systems  of  currency  ;  and  the  old  race  of  writers,  who  exhausted  their  own 
powers  and  their  readers'  patience  in  endeavoring  to  solve  the  problem,  when  the  national  debt  would  or 
could  be  extinguished,  have  now  given  place  to  a  more  interesting  class  of  authors,  who  make  facts  and 
statistics  the  groundwork  of  their  labors.  We  say  nothing  in  disparagement  of  the  old  currency 
pamphleteers.  Although  they  materially  assisted  in  rendering  "the  currency  question"  a  bugbear  to 
those  who  had  no  hobby  of  their  own  on  the  subject,  they  did  good  service  in  the  cause  of  truth  by 
keeping  the  question  continually  before  the  public;  and  it  would  ill  become  those  who  are  now  benefit- 
ing by  their  labors,  to  disparage  their  exertions.  But  we  confess  we  would  rather  have  a  few  such 
works  as  Francis's  "History  of  the  Bank  of  England,"  and  the  volume  before  us,  than  many  hundred 
volumes  of  the  essays  on  banking  and  the  currency  which  have  previously  been  issued. 

Mr.  Lawson  has  given  us  a  very  interesting  volume,  as  his  contribution  to  the  History  of  Banking. 
He  has  taken  great  pains  to  make  his  work  accurate ;  and  as  it  is  the  result  of  many  years'  labor  and  re- 
search, it  possesses  a  higher  value  than  could  be  claimed  for  a  more  ephemeral  publication.  He  presents 
us  with  a  good  general  view  of  the  state  of  banking,  and  incidentally  of  commerce  also,  from  the  earliest 
periods  to  the  present  time;  and  he  has  interwoven  his  facts  so  pleasantly  with  anecdotal  narrative, 
that  the  work  will  be  found  interesting  by  all  classes  of  readers.  —  London  Bankers'  Magazine. 


THE  HISTORY  OF  BANKING  ;  WITH  A  COMPREHENSIVE  ACCOUNT  OF  THE 
ORIGIN,  RISE,  AND  PROGRESS  OF  THE  BANKS  OF  ENGLAND,  IRELAND, 
AND  SCOTLAND.  By  WILLIAM  J.  LAWSON. 

From  the  London  Spectator,  September  23,  1830. 

THIS  volume  has  a  wider  range  than  some  late  books  on  banks  and  banking,  or  than  iuown  title  would 
imply.  Taxes,  and  coin  to  pay  them  with,  have  existed  in  this  country  since  the  time  of  the  Roman*. 
As  soon  as  there  is  sufficient  order  in  society  (lawless  as  it  still  may  be)  to  warrant  the  journey*  of  a 
commercial  traveller,  the  money-changer  springs  up  in  large  towns ;  for  without  him  a  man  might  be  In 
the  position  of  Midas,  and  starve  with  gold  and  silver  in  his  possession,  or  be  fleeced  more  completely 
by  the  amateur  than  by  the  regular  dealer,  —as  indeed  is  usually  the  case.  How  credit  original**  i* 
not  easily  told  ;  its  beginning,  like  other  indispensable  acts,  is  lost  in  the  lapw  of  age*.  But  credit 
proper-goods  "  upon  tick  "  -  perhaps  arose  nillywilly  ;  those  took  "  who  had  the  power,"  and  *aii»- 
fied  their  conscience  with  a  promise  to  pay.  Banking  proper  — the  deposit  of  valuable*  for  security,  la 
be  returned  on  demand  — originated  in  trust,  in  the  confidence  the  depositor  felt  in  the  honor  of  the  per- 
son trusted.  A  money-order  was  perhaps  antecedent  to  the  money-changer,  and  if  not  anterior  to 
ing  itself,  was  anterior  to  it  as  a  general  accomplishment;  a  ring  or  other  token  answering  the  purpose 
of'the  modern  check.  The  bill  of  exchange  has  been  attributed  by  many,  including  David  Hume,  li- 
the persecution  of  the  Jews  during  the  Middle  Ages.  That  it  had  an  Oriental  origin  I*  probable,  but  the 


Lawsori's  History  of  Banking. 


thing  itself  must  have  been  nearly  contemporary  with  distant  trade  and  deposited  valuables.  When  the 
first  money-order  was  transferred  by  the  necessity  or  convenience  of  the  holder,  there  was  essentially  a 
bill  of  exchange,  though  a  modern  lawyer  or  bill-broker  might  say  no,  on  account  of  its  want  of  form. 
As  nations  grew  richer,  trade  increased,  and  law  as  a  parallel  cause  was  better  enforced ;  credit,  de- 
posits, and  that  substitute  for  ready  money,  a  bill  of  exchange,  increased  too ;  till  the  money-changer 
and  goldsmith  passed  into  the  banker,  and  the  law  of  bills  and  bankers'  checks  was  established  on  the 
usages  of  trade.  To  effect  this,  took  many  ages  in  all  countries  ;  banking  was  practised  in  Italy  some 
centuries  before  it  was  established  in  England ;  efforts  were  made  by  far-seeing  men  or  by  premature  pro- 
jectors to  force  public  banks  in  England,  more  than  half  a  century  before  the  wants  of  the  general  public 
permitted  success.  The  real  growth  of  the  system,  when  society  was  ripe  for  it,  is  read  in  the  history 
of  the  house  of  Smith,  Payne,  and  Smith. 

Of  all  these  topics  —  of  ancient  coins  and  coinage,  primitive  money-changing,  bills  of  exchange,  and 
banking  in  this  country  —  Mr.  Lawson  gives  what  he  calls  a  comprehensive  account ;  but  which  strikes 
us  as  being  rather  a  succinct  summary,  for  it  is  not  distinguished  by  much  grasp  or  completeness. 
These  things  are  followed  by  an  elaborate  history  of  the  Bank  of  England,  more  legal  and  commercial 
than  personal  and  anecdotal.  English  private  banking  in  town  and  country  succeeds  to  the  story  of  the 
the  Bank;  next  comes  an  account  of  the  modern  Joint-Stock  Banks ;  and  then  the  history  of  Scotch 
and  Irish  banking. 

Of  late  years  several  works  upon  banking  have  appeared,  whose  main  subject  was  similar  to  Mr. 
Lawson's ;  so  that  its  leading  outlines  are  not  very  new.  Its  greater  range  of  topics  and  its  peculiar 
treatment,  however,  give  it  some  variety  and  even  subordinate  novelty.  It  is  not  so  light  as  Francis's 
"  History  of  the  Bank  of  England,"  and  some  other  books  limited  to  stories,  anecdotes,  and  strange  in- 
cidents. If  not  so  informing  about  the  arcana  of  banking  business,  or  so  homogeneous  in  its  treatment, 
as  Gilbart's  "History  of  Banking,"  its  topics  are  somewhat  loftier,  involving  ministerial  and  Parlia- 
mentary events. 

Mr.  Lawson  himself  is  a  practical  banker,  who  has  lived  since  he  left  the  Blue-Coat  School  in  the  at- 
mosphere of  the  "  shop."  His  attention  has  been  directed  to  the  traditions  of  the  craft,  with  which  he 
varies  his  narrative. 


CIRCULAR  TO  BANKING  INSTITUTIONS. 


THE  Publisher  of  the  Bankers1  Magazine  gives  notice  that  the  following  important 
and  interesting  works  will  be  embodied  in  "  T/ie  Bankers'  Magazine  and  Statistical 
Register"  for  the  year  beginning  July,  1851,  and  ending  June,  1852  :  — 

I.  New  Varieties  of  Gold  and  Silver  Coins  and  Bullion,  with  important  details  relating  to  the  Coinage, 
Rules  of  the  Mint,  &c.    By  JACOB  R.  ECKFELDT  and  W.  E.  DUBOIS,  Assayera  of  the  United  States 
Mint. 

II.  The  American  Law  of  Banking.    A  Synopsis  of  the  Decisions  of  the  higher  Courts  of  every 
State  in  the  Union,  upon  the  subjects  of  Banking,  Bills  of  Exchange,  Promissory  Notes,  Damages  on 
Bills,  Usury,  Notaries  Public,  &c.    The  decisions  of  e£ih  State  will  be  arranged  by  themselves,  com- 
mencing with  Maine;  to  be  followed  in  order  by  New  Hampshire,  Vermont,  Massachusetts,  Connecti- 
cut, New  York,  &c. 

HI.  History  of  Banking  and  Currency.     By  W.  J.  LAWSON,  Esq.    A  recent  English  Work. 

IV.  Historical  Sketches  of  the  Early  Currency  among  the  American  Colonies. 

V.  Gilbart's  Practical  Treatise  on  Banking, — concluded.    The  Second  American  Edition  of  this 
work,  entire  (470  pages),  may  be  had  of  booksellers  throughout  the  United  States. 

The  Bankers'  Magazine  is  now  published  monthly,  84  pages,  octavo,  at  Five  Dollars  per  annum.    By 
.he  new  postage  law  of  the  United  States,  the  postage  on  this  work  is  essentially  reduced. 
The  editor  desires  all  communications  and  subscriptions  to  be  forwarded  per  mail,  and  not  by  Express, 

J.  SMITH  ROMANS,.  EDITOR  BANKERS'  MASAZINB, 

111  Washington  Street,  Boston 


TO    BANK   OFFICERS. 


ONE   HUNDRED    DOLLARS   PREMIUM 

Will  be  given  by  the  editor  of  the  Bankers'  Magazine,  for  the  best 
Article  under  the  following  head  : 

Suggestions  to  Young  Cashiers  on  the  Duties  of  their  Profession. 


CONDITIONS. 

1.  Communications  will  be  received  that  have  been  written  by  the  Presidents,  Cash- 
iers, or  other  officers  of  Banks  ;  and  from  none  others. 

2.  Communications  intended  for  the  Prize  Essay,  should  be  sealed  and  forwarded  to 
the  Editor  of  the  Bankers'  Magazine,  so  as  to  reach  him  on  or  before  November  15th, 
accompanied  by  a  sealed  Note,  containing  the  name  of  the  writer. 

3.  The  Committee  of  Adjudication  will  be  named  in  the  November  No.    They  will 
decide  as  to  the  merits  of  the  respective  communications,  without  knowing  the  names 
of  the  Authors. 

4.  Communications  will  be  received  until  November  loth;  and  the  article  that  shall 
be  decided  to  be  the  best,  will  be  inserted  in  the  January  No.  of  the  Bcmkert'  Magazine. 

5.  The  Editor  reserves  to  himself  the  privilege  of  publishing,  at  other  periods,  the 
Articles  that  shall  be  rejected  by  the  Committee. 


It  is  suggested  to  those  Bank  Officers  who  are  disposed  to  write  for  the  Premium, 
that  the  article  should  not  make  more  than  twenty -five,  nor  less  than  ten,  printed 
pages  of  the  Banker's  Magazine. 

ADDRESS-  J.  SMITH   HOMANS, 

EDITOR  BANKERS'  MAGAZINE, 
111  Washington  St.,  Boston,  or  50  Wall  St.,  .Veto  York. 

NOTICE. — The  following  Nos.  of  the  Bankers'  Magazine  mre  out  of  print.  Those 
persons  who  have  one  or  more  of  the  Nos.  and  do  not  wish  to  keep  them,  will  confer  a 
favor  on  the  Publisher  by  sending  such  Nos.  to  him.  Fifty  cents  will  be  allowed  for 
either  of  the  following,  payable  in  works  issued  by  the  undersigned, 

3.  SMITH  HOMANS,  BO-JTOX. 

Viz:  — July,  August,  September,  October,  1319;  October,  1816;  Jinu  iry,  March, 
April,  July,  1817. 

We  have  concluded  to  Stereotype  the  present  Volume  of  the  Banker*'  Magaiine, 
and  therefore  omit  the  Stock  Tables  which  were  issued  in  1853.  Copious  information 
upon  the  subject  of  Stocks  and  Stock  Operations  will  be  found  in  Willis  A  Go's  B»n'r 
Note  List,  published  at  J1.59  per  annum. 

FIVE   BANKING  BOOKS  FOR  FIVE  DOLLARS. 

Recent  works  on  Banking,  for  the  use  of  Presidents,  Cashiers,  Tellers,  and  other 
Bank  Officers,  and  for  Directors  of  Banks,  Insurance  Companies,  Public  Libraries  *c. : 

1.  Gilbart  on  Banking,— from  the  fifth  London  Edition,  1  vol.  8ro..  470  pp.    J2.50 

2.  McCulloch's  Essays  on  Exchange,  Interest,  Money,  Coins  and  Bullion,    .     .7-5 

3.  The  Banker's  Common  Place  Book * 

4.  Chronicles  and  Characters  of  the  Stock  Exchange, 75 

5.  The  Bankers'  Almanac  for  18-51 


Lawsorfs  History  of  Banking. 


•  THE   EARLY  HISTORY  OF  BANKING. 

THE  HISTORY  OF  BANKING  ;  WITH  A  COMPREHENSIVE  ACCOUNT  OF  THE 
ORIGIN,  RISE,  AND  PROGRESS  OF  THE  BANKS  OF  ENGLAND,  IRELAND, 
AND  SCOTLAND.  By  WILLIAM  JOHN  LAWSON. 


"The  Bank  of  England  is  to  the  Agriculture,  Commerce,  and  Finance  of  Great  Britain,  a  SUN;  and  the 
CIRCULATION  of  so  many  millions  of  its  paper  is  the  BASIS  on  which  its  convenience,  property,  and 
safety  have  hitherto  rested." — SIR  FRANCIS  BARING. 


The  whole  of  this  work  will  be  contained  in  the  Bankers'  Magazine  for  1351  -52. 


CONTENTS. 

-»  CHAPTER  I.  —  INTRODUCTION. 

Gold  and  Silver  substitutes  for  Barter.  —  William  the  Conqueror  introduces  into  England  the  terms 
Pounds,  Shillings,  and  Pence.  —  A  Review  of  the  Prerogatives  of  the  Crown  in  the  Matter  of  the 
Coinage.  — '  Early  Establishment  of  Mints.  —  Origin  of  the  term  Sterling.  —  Early  Standard  of  our  Coins. 
Encouragement  of  the  Coinage  by  Charles  the  Second. — John  Roelier  and  Thomas  Simon.  —  Trial 
Piece  arid  Petition  of  the  latter.  —  Attempt  to  deteriorate  the  Coinage  by  Charles  the  First.  —  Trial  of 
the  Fix. 

CHAPTER  II.  —  ORIGIN  OP  BANKS  IN  ENGLAND. 

First  Establishment  of  the  Exchequer.  — Its  Functions  as  a  Bank.  —  Nature  of  Exchequer  Bills. — 
Revenues  of  the  Crown  originally  paid  in  Kind.  — The  Brotherhood  of  St.  Thomas  a-Becket  incorporated. 
—  The  Merchants  of  the  Steel  Yard  incorporated.  — Some  Account  of  the  Cambium  Regis,  or  Royal 
Office  of  Exchange  —  Antiquity  of  the  Company  of  Moneyers.  — Exchanges  as  originally  practised  by 
the  Jews.  —  Introduction  of  the  Jews  into  England  by  William  the  Conqueror.  —  Their  Functions  as 
Bankers. —  Their  Expulsion. —  Origin  of  the  term  Bankrupt.  —  Introduction  of  the  Lombards  into  Eng- 
land as  Bankers.  —  Many  of  them  banished.  —  First  Legalizing  of  Interest  of  Money  by  Act  of  Parlia- 
ment. —  Variations  in  the  Rate  of  Interest.  —  Sir  Josiah  Child's  Description  of  the  Effect  of  Lowering  the 
Rate  of  Interest. 

CHAPTER  III. —  ON  BILLS  OF  EXCHANGE. 

Introduction  of  Bills  of  Exchange. — First  Use  made  of  them  in  England.  —  Form  of  a  Bill  in  the 
year  1235.  —  Copy  of  a  Bill  in  1589. —  Modern  Form  introduced  by  the  Goldsmiths. —Negotiating  of 
Foreign  Bills  a  Royal  Prerogative.  —  legalizing  of  Bills  of  Exchange,  9  and  10  William  the  Third. — 
Nature  of  Bills  of  Exchange.  —  Difference  between  Bank-Notes  and  Bills  of  Exchange.  —  Difference  be- 
tween Bankers'  Bills  and  Mercantile  Bills  of  Exchange.  —  On  Days  of  Grace. —  On  Foreign  Bills  and 


Contents. 

Exchanges.  —  Contrast  between  the  Trade  of  England  with  America,  and  that  of  other  Countries  — 
Blackstone's  Definition  of  a  Bill  of  Exchange  -Sir  John  Bayley  on  Bills  of  Exchange,  Promissory 
Notes,  and  Checks.  —  The  Laws  and  Customs  respecting  them.  —  The  late  Mr.  Rothschild.  —  Mr.  ROM 
and  "  Rothschild's  Pillar." 


CHAPTER  IV.  —  FOUNDATION  OF  THB  BANK  OP  ENGLAND. 

Origin  of  the  Bank  of  England.  -  Debates  in  Parliament  respecting  the  Ban*.  -Act  for  establishing 
the  Bank  passed  1694  —  Directors  chosen.  —  Commence  active  Operations  at  Grocers'  Hall  in  the  Poultry. 
—  Petition  to  the  House  of  Commons  to  dissolve  the  Bank  rejected.  —  Difficulties  of  the  infant  Bank. 
Advertise  for  Customers.  —  Issue  Sealed  Bills  bearing  Interest.  —Obtain  the  exclusive  Privilege  of 
Banking  in  1708.—  First  Issue  of  Bank  Post  Bills.  —  Singular  Trial  respecting  a  Bank-Note.—  First 
Execution  for  Forgery  of  Bank-Notes,  1758.  —  A  Military  Force  first  sent  to  guard  the  Bank.  —  Unclaimed 
Dividends  the  Subject  of  Dispute  between  the  Government  and  the  Bank.  —  Settlement  of  the  Question. 
—First  Issue  of  Five-Pound  Notes.  —  Difficulties  of  the  Bank  in  1795.  —  Alarming  State  of  their  Affairs. 
—Order  in  Council  authorising  the  Bank  to  refuse  Gold  for  its  Notes.  —  Issue  of  One  and  Two  Pound 
Notes.  —  Report  on  the  Affairs  of  the  Bank.  —  Proposals  for  a  new  Bank.  —The  Bank  con  tribute 
£200,000  towards  the  Expense  of  the  War. 


CHAPTER  V.  —  CONTINUATION  OF  THB  HISTORY  op  TH»  BANK. 

Bank  obtain  a  Renewal  of  their  Charter  to  1833.  —  Consideration  given  for  the  same.  —  A  Bank  Clerk 
defrauds  the  Corporation  of  £  300,000.  —  His  Trial  and  ingenious  Defence.  —  Bank  issue  Spanish  Dollars. 
Bullion  Committee  1810.—  Penalty  for  Selling  Gold  Coin.  —  Bank  issue  3t.  and  It.  Gd.  Silver  Tokens.— 
Act  withdrawing  the  Tokens.  —  Issue  of  New  Coin  of  Gold  and  Silver.  —  Summary  of  the  Acts  on  the 
Restriction  of  Cash  Payments.  —  Peel's  Bill.  —Consequences  thereof.  —  Panic  among  the  Bankers.  — 
Description  of  the  Panic.  by  a  Bank  Director.  —  Schemes  and  Bubbles  of  1824  and  182S.  —Opposition  of 
the  Bank  to  the  Government  Proposition  to  improve  the  Banking  System.  —  Act  legalizing  the  Forma- 
tion of  Joint  Stock  Banks.  —  Establishment  of  Branches  by  the  Bank  of  England.  —  Correspondence  on 
renewing  the  Charter,  1833.  —  Result  thereof.  —  Regulations  of  the  Bank  rendered  impracticable  —  Loan 
of  £20,000,000  to  Emancipate  the  Slaves.  —  Renewal  of  the  Bank  Charter,  1844.  —  Opinions  respecting 
the  Bank  being  the  sole  Bank  of  Issue.  —  Copy  of  the  Act  7  and  8  Vic.  cap.  32. 

CHAPTER  VI.—  ON  TBI  BUSINESS  OP  ram  BANK. 

The  Bank  commence  Business  in  Grocers'  Hall.  —  Build  a  new  Bank.  —  Description  of  the  Building, 
and  its  subsequent  Enlargement.  —  Allowance  made  to  the  Bank  by  Government.  —  Retirement  of  Mr. 
Abraham  Newland.  —  Commissioners  appointed  to  improve  the  Style  of  Bank  Notes.  —  How  manufac- 
tured. —  A  singular  Trial  caused  by  a  Note.  —  Account  of  outstanding  Bank-Notes  in  1832.  —  The  Thou- 
nand-Pound  Note  and  the  Bank  Clerk.  —  Losses  sustained  by  the  Bank.  —  Great  Profits  of  the  Bank, 
and  whence  derived.  —  Description  of  the  Dead  Weight.  —  Business  of  the  Bank.  How  divided.— 
Number  of  Persons  officially  employed.  —  Annual  Election  of  all  the  Officer*  of  the  Bank.  —  Class  of 
Proprietors  from  whom  Directors  are  chosen.  —  Uniform  Integrity  of  Directors  In  the  Discharge  of  their 
Duty.  —Scale  of  Votes  at  General  Courts.  —  Management  of  the  Aflairs  of  the  Bank  exclusively  !n  the 
Directors.  —  Mode  of  declaring  Dividends  on  Bank  Stock.—  The  Bank  compelled  to  publish  a  Stau 
of  their  Affairs  —  Nature  of  the  Transactions  of  the  Bank  with  the  Exchequer,  as  described  by  Abra- 
ham Newland.  -Origin  and  Progress  of  the  National  Debt.  —  Dr.  Price  on  Reversionary  Annuiito.— 
Stockbrokers.—  Speculating  in  the  Funds.  —  Bulls,  Bears,  and  Lame  Ducks.  —  Origin  of  the  Sinking 
Fund,  and  its  final  Extinction.  -  Mode  of  providing  for  the  Dividends  by  Government  -General  Plan 
of  Business.  —The  late  Mr.  Rippon,  Chief  Cashier  of  the  Bank. 


Contents. 


CHAPTER  X.  —  ON  IRISH  BANKING. 

Flourishing  State  of  Ireland  in  the  Time  of  James  the  First.  — Injurious  Restrictions  on  the  Trade  of 
Ireland. — The  Woollen  Manufactures  of  Ireland  suppressed  by  the  English  Government.  —  Affecting 
Address  from  Ireland  to  England  on  the  Commercial  Restraints  of  the  former.  —  Absenteeism,  a  Crying 
Evil  in  Ireland.  — Coining  of  Irish  Money  in  the  Reign  of  King  John.  —  Shameful  Depreciation  of  the 
Currency  by  King  James  the  Second.  —  Another  Attempt  made  to  lessen  the  Value  of  the  Coin  by  Wood. 

—  Dean  Swift  and  Drapier's  Letters.  —  The  Principal  Merchants  in  Dublin  petition  the  Irish  House  of 
Commons  for  Permission  to  establish  a  Bank  in  1695.  —  Its  Rejection.  —  Another  Attempt  in  1720  to  form 
a  Bank  alike  unsuccessful.  —  Curious  Resolutions  passed  by  the  Irish  Parliament  on  rejecting  this  Bank. 

—  On  the  Laws  of  Partnership  in  Ireland.  —  Absurd  Legislative  Restrictions  imposed  on  Bankers. — 
Some  Account  of  the  Failure  of  several  Irish  Banks  previous  to  the  Formation  of  the  Bank  of  Ireland. 

—  Abstract  of  the  Act  establishing  the  Bank  of  Ireland.  —  The  Bank  Purchase  the  Parliament-House. 

—  A  Description  of  the  same.  —  Profits  of  the  Bank  of  Ireland.  —  Opposition  of  the  Bank  to  the  Forma- 
tion of  Joint  Stock  Banks.  — Signal  Instance  of  their  Hostility  to  a  Bank.  —  The  Burning  of  Beresford'a 
Notes. — Monts  de  Pieie.  —  Loan  Societies.  —  Pawning  Money.  —  Issues  of  I.O.U.'s.  —  The  Killar- 
ney  Banker  and  the  Saddle.  —  Disgraceful  State  of  the  Banking  Interest.  —  Irish  Banks  and  Joint  Stock 
Banks.  —  The  Bank  of  Ireland  and  the  Provincial  Bank. 


CHAPTER  XI.  —  ON  SCOTCH  BANKINO. 

Heads  of  Monasteries  the  first  Bankers  in  Scotland.  —  Heriot,  Banker  to  King  James.  —  Paterson,  the 
Founder  of  the  Bank  of  England,  establishes  the  Scottish  Darien  Company.  — Jealousy  of  the  English, 
and  consequent  Ill-Success  of  the  Project.  —  State  of  Scotland,  before  and  after  the  Union.  —  Early  Coin- 
age of  Scotland.  —  Holland's  Account  of  the  Formation  of  the  Bank  of  Scotland.  —  Abstract  of  the  Act 
of  the  Scottish  Parliament  establishing  the  Bank.  —  Comparison  between  this  Act  and  that  for  estab- 
lishing the  Bank  of  England.  —  Proposals  made  to  the  Bank  to  issue  Stamped  Brass  Coin  or  Wooden 
Tallies.  —  Issue  of  One- Pound'Notes  by  the  Bank  in  1701. —Union  of  Scotland  with  England.  —  The 
Equivalent  Fund.  — The  Commissioners  for  the  Disposal  of  this  Fund  petition  for  a  Charter  of  Incorpora- 
tion as  a  Bank,  which  was  subsequently  granted  under  the  title  of  the  Royal  Bank.  —  Jealousy  of  the 
Bank  of  Scotland,  who  soon  after  suspend  Payments.  — Arrangements  made  with  their  Note-holders.  — 
The  Bank  called  the  British  Linen  Company  established.  —  The  Pretender  and  the  Edinburgh  Banks. 
—  Establishment  of  Private  Banks  in  Scotland.  —  Optional  Bank-Notes  suppressed.  —  Details  of  Scotch 
Banking.  —  Amount  of  Deposits  in  Scotch  Banks.  —  Attempt  to  withdraw  the  One-Pound  Note  Circula- 
tion of  Scotland.—  Sir  Walter  Scott's  Opposition  to  the  Measure  under  the  Signature  of  Malachi  Mala- 
growther. —  His  Arguments  answered. — The  Attempt  abandoned  in  Consequence  of  the  Report  of  a 
Committee  of  the  House  of  Commons. — Small  Amount  of  Gold  in  Circulation  in  Scotland.  —  Account 
of  the  Failure  of  Scotch  Banks.  —  Laws  relating  to  Bills  of  Exchange  peculiar  to  Scotland.  —  Conclusion. 


MR.  LAWSON  has  given  us  a  very  interesting  volume,  as  his  contribution  to  the  History  of  Banking. 
He  has  taken  great  pains  to  make  his  work  accurate;  and  as  it  is  the  result  of  many  years'  labor  and  re- 
March,  it  possesses  a  higher  value  than  could  be  claimed  for  a  more  ephemeral  publication.  He  present* 
us  with  a  good  general  view  of  the  state  of  banking,  and  incidentally  of  commerce  also,  from  the  earliest 
periods  to  the  present  time:  and  he  has  interwoven  his  facts  so  pleasantly  with  anecdotal  narrative, 
that  the  work  will  be  found  interesting  by  all  classes  of  readers. — London  Bankers'  Magazine, 
August,  1850. 


( The  Bankers1  Magazine  contains  the  following  elaborate  Essay  on  Exchange 
by  J.  R.  McCulloch,  ESJ.) 


ESSAY  ON  EXCHANGE. 

Bv  J.  R.  McCULLOCH. 


CONTENTS. 


CHAPTER  I.  —  ON  INLAND  EXCHANGE. 

Circumstances  which  determine  the  price  of  Inland  Bills. 
Natural  limit  to  fluctuations  in  the  exchange. 
Fictitious  bills  of  exchange. 

CHAPTER  n.  — FOREIGN  EXCHANGE. 

Circumstances  which  regulate  the  value  of  bullion  in  different  coun- 
tries. 

Manner  of  estimating  the  quantity  of  bullion  in  different  coins. 

Effect  of  variations  in  the  value  of  metallic  currency  on  the  exchange. 

Effect  of  variations  in  the  relative  value  of  gold  and  silver. 

Effect  of  variations^ in  the  value  of  paper  currency  on  the  exchange. 

Effect  of  fluctuations  in  the  nominal  exchange  on  export  and  im- 
port trade. 

Effect  of  fluctuations  in  nominal  exchange  on  the  trade  in  bullion. 

CHAPTER   III.  — REAL  EXCHANGE. 

Limit  to  fluctuations  in  the  real  exchange. 

Circumstances  which  give  rise  to  a  favorable  or  unfavorable  balance 
of  payments. 

The  fact  that  the  value  of  imports  exceeds  that  of  the  exports  does 
not  warrant  the  conclusion  that  the  balance  is  unfavorable. 

In  countries  carrying  on  an  advantageous  commeice,  the  value  of 
imports  must  always  exceed  the  value  of  the  exports. 

Erroneous  notions  relative  to  the  balance  of  trade.  ^ 

Favorable  or  unfavorable  balance  not  always  paid  in  bullion. 

Effect  of  fluctuations  in  the  real  exchange  on  foreign  trade. 

Operations  of  the  bill-merchants  lessen  fluctuations. 

A  large  foreign  expenditure  has  no  permanent  effect  on  exchange. 

Cause°of  the  rise  of  exchange  in  1815  and  1816. 


CONTENTS. 

CHAPTER  IV.  —  UNFAVORABLE  REAL  EXCHANGE. 

Refutation  of  the  opinion,  that,  din-ing  an  unfavorable  real  exchange, 
commodities  of  great  value  and  small  bulk  are  exported  in  preference 
to  others. 

Computed  exchange  represents  either  the  sum  or  the  difference  of 
the  real  and  nominal  exchange. 

State  of  the  exchange  between  Great  Britain  and  the  Continent  from 
1809  to  1815. 

Causes  of  the  exportation  of  bullion  in  1809,  1810,  &c. 

The  unfavorable  exchange  during  the  latter  years  of  the  war  no  cause 
of  the  extraordinary  exportation  of  British  produce  to  the  Continent. 

CHAPTER  V.  —  NEGOTIATION  OF  BILLS  OF  EXCHANGE. 

Arbitration  of  exchange. 

Usance  days  of  grace,  Amsterdam,  Rotterdam,  Antwerp,  Hamburg, 
Altona,  Dantzic,  Paris,  Bordeaux,  Bremen,  Barcelona,  Geneva,  Madrid, 
Cadiz,  Bilboa,  Gibraltar,  Leghorn,  Leipsic,  Genoa,  Venice,  Vienna, 
Malta,  Naples,  Palermo,  Lisbon,  Oporto,  Rio  Janeiro,  Dublin. 

CHAPTER  VI.  —  HISTORY  AND  ADVANTAGES  OF  BILLS  OF  EXCHANGE. 

The  origin,  progress,  commercial  effect,  political  effects,  and  general 
importance  of  bills  of  exchange. 

CHAPTER  VII. — LAWS  AND  CUSTOMS  RESPECTING  BILLS  OF  EXCHANGE. 

Requisites  of  a  bill  or  note. 

General  explanatory  rules  and  usages.  Business  hours.  Rules  of 
giving  notices.  Effect  of  inevitable  accident.  How  to  act  when  a  bill 
is  lost.  Effect  of  usury.  Effect  of  gaming.  Effect  of  forgery.  Effect 
of  vitiation.  Acceptance  by  procuration.  Conditional  acceptance.  In- 
dorsements. 

Duties  of  drawee.  Duties  of  payee  or  holder.  Effect  of  bankruptcy. 
Accommodation  paper.  Cross  paper. 

CHAPTER  VIII.  — MONEYS  OF  ACCOUNT. 

Table  containing  the  value  of  the  moneys  of  account  of  different  places, 
expressed  in  pence  and  decimals  of  pence,  according  to  the  mint  price 
both  of  gold  and  silver  in  England  ;  that  is,  ,£3  17s.  IQ^d.  per  ounce 
for  gold,  and  5s.  %d,  per  ounce  for  silver. 

Par  of  exchange  between  England  and  the  following  places,  viz. 
Amsterdam,  Hamburg,  Paris,  Madrid,  Lisbon,  Leghorn,  Genoa,  Naples, 
and  Venice  ;  the  same  being  computed  from  the  intrinsic  value  of  their 
principal  coins,  by  comparing  gold  with  gold,  and  silver  with  silver,  ac- 
cording to  their  mint  regulations,  and  to  assays  made  at  the  London  and 
Paris  mints.  (Presented  by  Dr.  Kelly  to  the  committee  of  the  House  of 
Lords  on  the  expediency  of  the  Bank's  resuming  cash  payments.) 

***  The  whole  of  this  Essay  is  contained  in  "  The  Bankers'  Magazine  for  1850." 
Published  monthly  at  five  dollars  per  annum. 

J.  Smith  Homans,  111  Washington  Street,  Boston. 


ESSAY  ON  MOJVEY. 

BY  J.  R.  McCULLOCH,  ESQ. 

AOTHOR  OP  "rax  DIM10HABT  OP  OOMMKRCE,"   "PRINOTUM  OF  POLITICAL  ECOWOMT,"  id. 

(The  whole  of  this  Essay  will  be  contained  in  the  Bankers'  Magazine  for  1850. 
Published  monthly,  five  dollars  per  annum.) 


CONTENTS. 


CHAPTER  I.  —  ORIGIN  OF  MONET. 

Circumstances  which  led  to  the  use  of  money.  Principal  properties 
that  every  commodity  used  as  such  ought  to  possess.  \ 

Not  a  sign  or  a  measure  of  value,  but  a  real  equivalent. 

On  the  commodities  used  as  money  in  different  countries. 

On  the  defects  of  these  commodities. 

Gold  and  silver  the  fattest  materials  for  money,  and  first  used  in  the 
shape  of  bars  and  ingots. 

On  the  coinage  of  gold  and  silver. 

Advantages  of  coined  money.  —  Coined  money  not  a  sign,  or  a  meas- 
ure, of  value. 

Use  of  gold  and  silver  as  a  standard  for  estimating  the  relative  value 
of  commodities.  Proof  of  the  non-existence  of  an  abstract  or  ideal 
standard. 

CHAPTER  II.  —  THE  EXCHANGEABLE  VALUE  OF  MOICET. 

The  cost  of  production  regulates  the  value  of  money,  when  the  power 
of  supply  is  not  monopolized. 

The  proportion  between  the  supply  and  demand  regulates  the  value  of 
money,  when  the  power  of  supply  is  monopolized. 


ALPHABETICAL   INDEX 


CHRONICLES    AND    CHARACTERS 


STOCK   EXCHANGE. 


Alnon,  Remnrks  on  the  National  Debt, 83 

Annuities,  Policy  of, .  85 

A<<:ill,  Mr.,  on  reducing  the  National  Debt, 87 

Baily,  Francis,  Defence  of  the  Brokers,        .                .        .        .        .        .  72,81 

Bank  of  England,  —  First  Charter,  27th  July,  1694,          .  .9 

First  payment  of  Government  dividends,     ...  23 

"             Directors  of,  from  1694  to  1847, 156 

"             "             Dividends  of,  from  1694  to  1849,          .                .  101 

Barbicr,  Mr.,  on  the  National  Debt, 87 

Bill-clay  and  Co.,  Bankers,  Operations  of,     .        .        .        .        .        f       •  10-1 

Baring  and  Goldsmid,  Anecdotes  of, 61,7.") 

Barings,  Sketch  of  the  House  of, 7.~> 

Barnard,  Sir  John,  Opposition  to  the  Stock  Exchange, 2 '.'> 

"                       Act  against  Stock  Gambling,         .                        .  27 

Blackboard,  Notices  of  the, 55,  120 

Blunt,  Sir  John,  Originator  of  the  South-sea  Bubble, 23 

Bollnnd,  James,  Execution  of,  for  forgery, 119 

Bolinghroke,  Remarks  on  the  National  Debt  of  England,    .        .        .        .  82,  84 

Botviparte,  Policies  on  the  life  of, 71) 

Bo  wring,  and  the  Greek  Loan, K'O 

Bridgewater  Canal,           ....*. 90 

Brokers,  Acts  against, 71 

Change  Alley,  Origin  of, 10 

Charitable  Corporation  Frauds  in  London, 19 

Chatham,  Lord,  Opinions  of  Change  Alley, 57 

Clayton,  Sir  Robert,  notice  of, 8 

Cochrane,  Lord,  Fraud  of, 80 

Consols,  Highest  and  Lowest  Prices  of,  for  120  years,          ....  153 

Daniels,  Joseph  Elkin,  Fraud  of,             , 69 

Douglas,  Heron,  &  Co.,  of  London,  Failure  of, 39 

Dunhar.  Speculations  of, 118 

East  India  Company,  Stock  of,            .        . 9,  18 

"             "          Restriction  of  its  Dividends, 37 

Elizabeth,  (Queen,)  Numerous  Monopolies  granted  by,        ....  8 

165 


Alphabetical  Index. 

Equitable  Loan  Company,  Charter  of,  .        .       . 

Exchequer  Bills,  First  Fraud  in,  .... 

Exchange  Alley,  Anatomy  of, j^ 

Fofdyce,  Alexander,  Fraud  of, , 

Foreign  Loans  contracted, 

Fox,  Charles  James,  Anecdote  of, rt% 

Frauds  and  Forgeries,      . 32,40,69,77,80,100,119 

Furness,  Sir  Henry,  Anecdote  of,         . 1 1 

French  Revolution,  Effects  of  the, C4 

Germany,  Attempted  Loan  for,     ..        ^        ......  36 

Gideon,  Sampson,  the  Jew  Broker,       .  ».. 33  118 

Goldsmid,  Abraham  and  Benjamin,  '-..,*,       •       i»  .     .        .        .        .  59 

"        Suicide  of,        .  '    ,"     ••'•'•'«       .        .        .        •        60 

Gordon,  Lord  George,  Anecdote  of,      ,       .   ~    .        .        .       .        .       .  59 

Gray,  Thomas,  Plan  for  Roads,          .        ^A  .  .« 92,94 

Greece,  Loan  to,    .        .        .        .     '  .        .        •       •       •   •    .        .        .  104 

(Juatcm.ila,  Loan  to,  by  English  Capitalists, 103 

Guise,  Count  de,  Notice  of,    .        .        .        .        .        ••,.•        .        .          119 

Guy,  Thomas,  Anecdote  of, .        .        .  12, 25 

Hebrew  Brokers,  Number  limited  to  Twelve, 42 

Hume,  David.  Remarks  on  the  National  Debt, .......        84 

Hume,  Joseph,  and  the  Greek  Loan,     ........          105 

Johnstonc,  Cochrane,  Fraud  of,          .........        80 

Joint  Stock  Companies,  Speculations  in, ,         73 

Life  Insurance,  Notices  of, 125,127 

*  "        Indisputable  Company,        -,.• 127 

"        Policies  on  Diseased  Lives,      .       .        .        »       .       .  128 

u        Fraudulent  Companies,        .        .        .        .       •     •  •        .          130 

Liverpool  and  Manchester  Railroad,          .  93 

Loans  to  Contincntial  Powers,       .        .        .        ..      •  :     »        .        •        .104,115 

"     New,  Frauds,  &«., 44,154 

"     Since  1793,  and  Rates  of  Interest, 154 

Lopez,  Manassez,  Punishment  of, 29 

Lotteries,  Invention  of, •  '        49 

"        Employed  by  the  State,  for  Revenue  Purpoies,         .        .<     »       •       47 

"        Evils  of,  and  Frauds  in, •  •-  •    . 

"        Abolition  of, M 

"        Effects  of, • 

Loyalty  Loan,  Subscriptions  to,        .        •        ...••'••» 

Mnrlborough's  (Duke  of)  Victories,  Effects  of, 

McGregor,  Gregor,  Notice  of, •       •       .      100 

Mining  Companies,  Speculations  in, ^.••-•; 

Moneyed  Interest,  Origin,  Extravagance,  and  Folly  of  the,       . 

National  Debt  (The),  Kemarks  on,  !«  *•  M 

"          "     Proposal  to  reduce  the  Interest  on,   . 

"          «     Increase  of,  1740-1766        .  •  'v' 

"          "      Curious  Proposition  to  paj  off, «•%* 

«          "      Review  of,  


Smith,  Paine,  Hervey,  Graham,  on, 
I  Fum 

166 


New-castle,  Duke  of,  Notice  of, 

Petty,  Sir  Henry,  Proposal  for  a  Sinking  Fund,        .        •        •        •        • 


ESSAY  ON   INTEREST, 

BY  J.  R.  MCCULLOCH. 

(Published  in  the  Bankers'  Magazine  for  1850.) 


CONTENTS. 


PAGE 

SKETCH  of  the  rates  of  interest  adopted  by  various  nations.         .    .  1 
The  rate  of  interest  varies  according  to  the  security  for  the  re- 
payment of  the  principal  and  the  duration  of  the  loan.    .         .      3 
On  the  interference   of  government   in  adjusting  the  rate  of  in- 
terest          .         .         .5 

Effect  of  the  usury  laws  in  Rome.     ......       8 

History  of  the  laws  regulating  the  rate  of  interest  in  England, 

Scotland,  and  Ireland .9 

Comparison  between   the   market  rate  and   the   statutory  rate  of 
interest  from  1714  to  1793.    .         .         .         .         .         .         .11 

Pernicious  effects  of  laws  to  regulate  interest.      .         .         .         .15 

The  usury  laws  do  not  protect  the  prodigal  and  unwary.    .  16 

There  were  no  usury  laws  in  Holland 17 

On   the  legal  rate  of  interest  in  France,  Hamburg,  Russia,  Aus- 
tria, Leghorn,  Spain,  and  the  United  States 18 

Usury  laws  do  not  reach  the  government.  .         .         .         .19 

Error  of  some  writers  on  the  subject  of  a  low  rate  of  interest.  .     20 


ESSAYS 


ON 


EXCHANGE,  INTEREST,  MONEY, 


AND 


OTHER    SUBJECTS 
BY  J.  R.  McCULLOCH, 

AUTHOR  OF   "  THE   DICTIONARY   OF   COMMERCE,"   &C. 


I.   ON    INTEREST   AND   THE    EFFECT   OF  THE   USURY   LAWS. 
H.   ON    FOREIGN   AND   DOMESTIC    EXCHANGE. 
III.   ON   MONEY,  COINS,   BULLION,  CURRENCY,  SEIGNORAGE,  &C 

WITH   COPIOUS  TABLES   OF   COINS   AND    MONEYS   OF  ACCOUNT. 


BOSTON: 

WM.    CROSBY   AND    H.    P.    NICHOLS, 

111  WASHINGTON  STREET. 

1850. 


THE   BANKER'S   ALMANAC, 

For     1 8  5  2  . 

WILL    BE    PUBLISHED    DECEMBER    IST,    1851, 

Containing  in  addition  to  the  matter  in  the  Almanac  for  1851 : 

I New  Law  of  New  York  establishing  the  Bank  Department. 

II New  Insurance  Law  of  the  State  of  New  York. 

III. ...New  Safety  Fund  Law  of  the  State  of  New  York. 

IV. ...Free  Banking  Law  of  the  State  of  Massachusetts,  adopted  May,  1851. 

V List  of  the  Banks  of  the  United  States  ;  Location  of  each;  Names  of  President 

and  Cashier  of  each ;  and  Capital  of  each. 

150  Pages   Octavo,* Paper  Covers,  Price  One  Dollar, 
per  mail,  will  be  duly  executed. 


Orders  received 


J.  SMITH  HOMANS, 
Publisher  Bankers'  Magazine,  111  Washington  Street,  Boston. 


l|ig°  The  first  edition  of  GILBART'S  PRACTICAL  TREATISE  ON  BANKING,  being  out 
of  print,  a  second  edition  was  issued  early  in  Jnne.  Copies  supplied  by  all  booksel- 
lers throughout  the  United  States. 

lUr  The  Third  Edition  of  THE  BANKERS'  COMMON  PLACE  BOOK,  is  now  ready. 
One  of  the  most  useful  volumes  for  Bank  Officers  and  Directors,  Brokers  and  Mer- 
chants. Price,  Fifty  Cents. 


ttoular  to  Banking  Institutions. 


The  Publisher  of  the  Bankers'  Magazine  gives  notice  that  the  following  important 
and  interesting  works  will  be  embodied  in  "  The  Bankers'  Magazine  and  Statistical  Reg- 
ister," for  the  year  beginning  July  1851,  and  ending  June  1852  : 

I.  New  varieties  of  Gold  and  Silver  Coins  and  Bullion.— 1.  Recent  Coins  of  the  World.    2.  Recent 
Counterfeit  Coins      3.  Gold  from  California.     4.  Recapitulation  of  the  Net  Mint  Values  of  Gold  and 
Silver  Coins,  issued  within  twenty-five  years.    6,  Silver  from  Lake  Superior.    6.  Table  of  Correspond- 
ence between  Penny  Wrights  and  Grains,  and  the  decimal  fractions  of  a  Troy  Ounce.     7.  Comparison 
of  American  and  Foreign  \Veights  used  for  Precious  Metals.    8.  Hulk  and  Packing  of  Precious  Metals. 
9.    Determination  of  the  Value  of  a  Specimen  of  Gold  or  Silver  in  its  Native  Hock  or  Gaugue.    10. 
Transaction  of  llusiness  at  the  Mint.    By  JACOB  K.  ECKFELDI  and  W.  E.  DUBOIS,  Assayers  of  the 
United  States  Miu.. 

II.  The  American  Law  of  Banking.     A  Synopsis  of  the  Decisions  of  the  higher  Courts  of  every 
State  in  the  Union  :  upon  the  subjects  of  Banking,  Kills  of  Exchange,  Promissory  Notes,  Damages  on 
Bills,  Usury,  Notaries  Public,  &c.     The  decisions  of  each  State  will  be  arranged  by  themselves,  com- 
mencing with  Maine;  to  be  followed  in  order  by  New  Hampshire,  Vermont,  Massachusetts,  Connecti- 
cut. New  York,  &c. 

III.  History  of  Banking  and  Currency ;  By  W.  J.  LAWSON,  Esq. ;  a  recent  English  Work. 

IV.  Historical  Ske:ches  of  the  Early  Currency  among  the  American  Colonies. 

V.  Gitbart's  Practical  Treatise  on  Banking— concluded.    The  second  American  edition  of  this  work 
tntire  (470  pages)  may  be  had  of  Booksellers  throughout  the  U.S. 

The  Bankers'  Magazine  is  now  published  monthly,  84  pages,  octavo,  at  Five  Dollars  per  annum.  By 
the  new  postage  law  of  the  United  States,  the  postage  on  this  work  is  essentially  reduced. 

Publishers  who  give  insertion  of  this  notice  to  the  amount  of  Five  Dollars,  will  be  entitled  to  a  copy 
of  the  Banker's  Magazine  for  one  year. 

The  editor  desires  all  communications  and  subscriptions  to  be  forwarded  per  mail,  and  not  by  express. 

J.  SMITH  HOMANS,  EDITOR  BANKERS'  MAGAZINE, 

111  Washington  Street,  Boston. 

Editors  who  receive  the  Banker's  Magazine  are  requested  to  copy  the  above. 


Just  Published.  — Price,  50  Cents. 

THE  BANKER'S  COMMON-PLACE  BOOK, 

— 137  Pages,  duodecimo;  containing  — 

I.   A  Treatise  on  Banking.    By  A.  B.  Johnson,  Esq.,  President  Onta- 
rio Bank,  Utica. 

II.   Ten  Minutes'  Advice  on  Keeping  a  Banker.     By  J.  W.  Gilbart, 
Esq.,  of  the  London  and  Westminster  Bank. 

III.  Byles  on  the  Law  of  Bills  of  Exchange. 

IV.  Remarks  on  Bills  of  Exchange.     By  J.  Ramsay  M'Cullocb,  Esq. 
V.   Forms  of  Bills  of  Exchange,  in  Eight  European  Languages. 

VI.    Forms  of  Notice  of  Protest,  with  Remarks. 
VII.    Synopsis  of  the  Bank  Laws  of  Massachusetts,  in  force  Jan.  1851. 
VIII.   Decisions  of  the  Supreme  Judicial  Court  of  Massachusetts,  in  refer- 
ence to  Banking. 

Persons  who  reside  at  a  distance  can  receive  the  work  per  mail ;  postage  paid 
to  any  part  of  the  U.  S.  Price,  fifty  cents  each,  or  two  copies  for  one  dollar. 
Postage  stamps  may  be  remitted  as  cash  at  all  times  for  fractional  sums  of  a  dollar. 

"Many  excellent  works  on  banking,  and  a  still  greater  number  of  article!  on  banking,  In  magazine* 
and  other  periodical  publications,  have  appeared  In  America  We  have  before  us  one  of  no  common 
merit.  It  is  entitled  A  Treatise  on  Banking— The  Duties  of  a  Banker,  and  hi*  Personal  H*  quUitm 
therefor.  By  A.  B.  Johnson,  President  of  the  Ontario  Branch  Bank,  at  Utica,  in  the  State  of  New 
York. 

"  The  first  part—'  The  Bank  '—contains  a  clear  exposition  of  tome  important  principles  of  banking 
and  currency,  and  a  comparison  between  the  Safety  Fund  system  and  the  Free  Bank  system  estab- 
lished in  New  York. 

"  The  second  part—'  The  Banker '  is  of  a  highly  practical  character ;  and  it  shows  that  howtTer 
widely  the  banks  of  England  and  of  America  may  differ  in  their  principles,  the  fields  of  cheir  opera- 
tions, their  constitutions,  and  their  privileges,  yet  the  practical  operalioos,  the  qualifications  of  their 
bankers,  the  dangers  to  which  they  are  exposed,  and  the  means  necessary  to  success,  are  ninth  the 
game  in  both  countries. 

"  Our  readers  will  doubtless  observe  that  nituiy  of  the  lessons  inculcated  in  the  above  quotation* 
are  similar  to  those  that  have  often  appeared  in  our  pages,  either  in  original  contributions  or  ID  ex- 
tracts from  works  that  we  have  reviewed.  This  coincidence  in  the  views  of  English  and  American 
bankers  is  a  confirmation  of  their  soundness.  We  like  the  sentiment,—*'  While  a  banker  adheres 
with  regularity  to  known  forms  of  business  and  settled  principles,  Providence  U  guarantee  for  bis 
success."  We  believe  that  in  almost  every  case  the  failure  of  a  bank  has  arisen  from  a  disregard  of 
sound  principles.  Whether  or  not  a  bank  follows,  In  its  practical  administration,  the  ICMOU  of  ex- 
perience, is  of  much  more  importance  to  success  than  whether  It  consist*  of  fix  or  seven  hundred 
partners.  The  management  of  a  bank  is  of  more  Importance  than  it*  constitution."— London  Cank- 
ers' Magazine.  ^  

The  author  of  one  of  the  ablest  works  on  banking  in  this  country,  never  probably  owned  a  hun- 
dred dollars  worth  of  bank  stock,  or  had  as  much  in  deposlte  in  any  bank  during  hi*  natural  life. 
We  may  point,  however,  to  an  honorable  exception  in  the  perron  of  A.  B.  Johnson,  E/q  ,  the  Pml- 
dent  of  the  Ontario  Branch  Bank.  Mr.  Johnson  is  not  only  a  rich  man,  but  an  able  and  accomplished 
writer  on  banking,  finance,  currency,  and  general  literature. 

He  is  moreover,  a  model  bank  manager.  His  clear  head,  stndlon*  habits,  and  fyttenatin  method 
in  business  matters,  would  be  inferred  from  his  writing*  by  tboM  who  art  not  acquainted  with  hto 
habits  and  character. 

The  best  writers  in  England  on  the  subject  of  Banking— practical,  theoretical  and  historical— Gil- 
bart,  Bell,  Lawson,  Francis,  &c.,  are  all  either  bank  manager*  or  bank  clerk*.  Kogers  and  Tapper, 
the  poet  and  the  proverbial  philosopher  are  banker*.— N.  Y.  Mirror. 


Boston,  Jpast  anb  Jpre0ent. 

JUST    PUBLISHED, 

SKETCHES  OP  BOSTON,  PAST&  PRESENT 

AND  OF  SOME 

FEW  TOWNS  IN   ITS  VICINITY. 

"  Honor  to  the  Past,  Gratitude  for  the  Present,  and  Fidelity  to  the  Future." 

One  Volume,  18mo.  pp.  370.    Price,  in  Paper  Covers,  Fifty  cents ;  in  Muslin,  with  a 
Map  of  Boston,  One  Dollar. 

One  Hundred  and  Twenty- Four  Engravings! 

THE  TRADE  SUPPLIED  BY 

PHILLIPS,    SAMPSON  &  CO. 


CONTENTS. 


Boston  in  the  Times  of  the  Pilgrims, 

Prominent  Incidents  in  the  History  of 

Boston, 
*The  Churches  of  Boston, 

The  Bridges  and  Ferries  of  Boston, 

Faneuil  Hall, 

Faneuil  Hall  Market, 

Grand  Junction  Railroad, 

Asylum  and  Farm  School, 

The  Islands  in  Boston  Harbor, 

Boston  in  Districts, 

East  Boston, 
*The  Theatres, 
*Cochituate  Water  "Works, 
•The  New  City  Jail, 

The  Eye  and  Ear  Infirmary, 
*The  Boston  Athenseum, 
*The  New  Custom-House, 

The  Club-House, 

The  Boston  Society  of  Natural  History, 
*The  New  Court-House, 
•The  New  Almshouse, 
•The  State's  Prison, 
•Massachusetts  General  Hospital, 

The  McLean  Asylum  for  the  Insane, 
•The  State- House, 
•Massachusetts  Historical  Society, 

Provident  Association  for  Savings, 
•The  Banks  in  Boston, 
•Hancock  House, 
•Boston  Common, 


•Perkins  Institution  for  the  Blind, 
•The  Public  Schools  of  Boston, 

History  of  the  Public  Schools, 

Conclusion. 


PART  SECOND. 

THE     VICINITY     OP     BOSTON. 
•I ROXBURT. 

•II LYNN, 

III. ...  WATEHTO  WN. 

IV CHARLESTOWN, 

V LOWELSL, 

VI.  ...BROOKLINE, 
•VII. .  .CAMBRIDGE, 

•Harvard  College, 
Faculties  of  Harvard  College, 
The  Medical  School, 
„       The  Botanic  Garden, 
•Dane  Law  School, 

The  Theological  School, 
•The  Observatory, 
•Lawrence  Scientific  School, 
•Library  of  the  University, 
•Christ  Church, 
•Washington's  Head-Quarters, 
•The  Riedesel  House, 
•Mount  Auburn, 
Fresh  Pond. 


*VIH...WALTHAM. 
*  These  subjects  are  copiously  i^lustiated  with  Engravings. 

Copies  per  mail,  postage  free  to  all  parts  of  the  United  States,— owe  dollar. 

J.  SMITH  ROMANS,  Boston. 


illis   &   oro'0  Sank  Note  Cist, 

AND 

COUNTE11FEIT   DETECTOR, 

PUBLISHED  MON^HTY^Tr^i.so  PER  ANNUM. 

This  Journal  contains  an  accurate  account  of  all  the  Counterfeits  of  Bank  Notes 

throughout  the  Union:  corrected  up  to  the  day  of  Publication.   Also,  copious 

Tables  of  the  Prices  of  Stocks  at  the  Boston  Brokers'  Board,  Notices  of 

the  Money  Market,  of  Coins,  Exchange,  Bullion,  &*. 

COPIES    MAILED   TO    ORDER. 

CONTENTS  OF  THE  JUNE  NUMBER. 

1.  All  the  New  Counterfeits  throughout  the  United  States.  2.  Notes  on  the 
Money  Market;  Rates  for  Money;  Foreign  Exchange;  Domestic  Exchange; 
Uncurrent  Money  ;  New  Stocks;  Virginia  State  Credit ;  Albany  Loan.  3.  Cali- 
fornia Gold  — with  engravings  of  the  new  Fifty  Dollar  Coin  and  Three  Cent 
Coin.  4.  American  Gold  at  the  English  Mint.  5.  New  Banks  in  Virginia; 
Free  Banking.  6.  New  York  Free  Banks ;  Coin ;  Securities,  &c.  7.  Finances 
of  Massachusetts ;  Bank  Tax,  &c.  8.  The  New  Metropolitan  Bank  at  New  York. 
9.  Free  Banking  in  Massachusetts  and  New  York ;  Losses  from  Free  Banks ; 
Bank  Failures ;  Redemption.  10.  Stock  Market  for  last  week  in  April. 

CONTENTS  OF  THE  JULY  NUMBER. 

1.  Money  Market  for  last  week  in  June ;  New  Stock  Operations ;  Manufactures ; 
Cotton  Exports ;  New  Banks  in  Massachusetts  ;  Maine  Banks.  2.  Counterfeits 
for  the  month  of  June;  Boston,  New  York,  itfew  Jersey,  &c.  3.  New  Bank  Cap- 
ital of  all  the  Banks  authorized  by  Acts  of  1851,  in  this  Commonwealth;  all 
paid  in ;  and  those  unpaid.  4.  Banks  in  Baltimore ;  Expiration  of  Charters. 
5.  New  Bank  Law  establishing  Bank  Commissioners  in  Massachusetts,  1851.  6. 
A  Review  of  the  London  Money  Market  for  May.  7.  Sale  of  Rail  Road  Bonds 
in  New  York,  June,  1851.  8.  New  Banks  in  Connecticutt ;  New  York;  Ver- 
mont; Rhode  Island.  9.  Mills  of  Lowell,  &c. ;  Losses  sustained,  1851.  10. 
Miscellaneous. — Hidden  Gold ;  Funded  Debt  of  Maryland  ;  Canada  Bills ;  New 
England  Cotton  Mills ;  American  Stocks  in  London ;  Bank  of  France ;  Private 
Coinage  in  California.  11.  The  Mills  of  Lowell.  —  Capital  of  each  ;  No.  of  Spin- 
dles ;  No.  of  Looms ;  No.  of  Males  and  Females  employed  in  each.  Showing 
also  the  consumption  of  Cotton  and  Wool,  weekly ;  No.  of  yards  made,  dyed  and 
printed,  weekly  ;  annual  consumption  of  coal,  charcoal,  firewood,  oil,  starch,  and 
flour  in  each  mill ;  and  the  general  aggregates.  Also  showing  the  date  when 
each  company  commenced  operations  ;  current;^alue  of  stock  in  the  market,  &c. 
These  tables  will  be  found  quite  complete,  and  were  lately  compiled. 

CONTENTS  OF  THE  AUGUST  NUMBER. 

1.  Money  Market  for  the  last  week  in  July,  with  account  of  Stock  Operations ; 
.  Manufactures ;  New  Banks  in  Massachusetts.  2.  Sub-Treasury  Statement  for 
June,  1851.  3.  Report  on  the  Failure  of  the  State  Bank  at  Morris.  4.  Import* 
of  Dry  Goods  at  New  York.  5.  Redemption  at  the  Suffolk  Bank  for  each  year, 
1834  to  1851..  6.  Stock  Operations  for  the  Month  of  June.  7.  Commercial 
Progress  of  the  States.  8.  All  the  new  Counterfeits  in  New  England,  &c. ; 
Arrest  of  Forgers  and  Counterfeiters.  9.  Quotations  of  all  the  Stocks  at  the 
Boston  Exchange  Board,  viz.  —  Government  Securities,  State  Securities,  City 
Securities,  Railroad  Bonds  and  Stocks,  Insurance  Companies,  Manufacturing 
Companies,  Boston  Banks,  Miscellaneous  Stocks. 

I3T  Subscribers  to  the  Bankers'  Magazine  are  recommended  to  examine  the  Bank 
Note  List,  which  furnishes  reliable  information  relating  to  Stocks  of  all  kinds. 

WILLIS  Ac  CO.,  BOSTON. 


POSTAGE,  within  500  miles,  9  cts.  per  Quarter  ;  between  500  and  1500  miles,  18  cts.  per  Quarter,  payable  in  adruno 

THE 

BANKERS'    MAGAZINE, 


AND 


EDITED  BY  J.   SMITH  HOMANS. 


"No  expectation  of  forbearance  or  indulgence  should  be  encouraged.  Favor  and  benev- 
olence are  not  the  attributes  of  good  banking.  Strict  justice,  and  the  rigid  performance  of 
contracts  are  its  proper  foundation." 

"The  Revenue  of  th«»  State  is  THE  STATE  :  in  effect,  all  depend  upon  it,  whether  for 
support  or  for  reformation." 


OCTOBER,  1851. -CONTENTS. 

I The  Supply  and  Consumption  of  Gold  and  Silver.     (From  tJie  London  Economist.) 

II Lawson's  Early  History  of  Banking.  —  Introduction  of  Hills  of  Exchange;  First 

Use  made  of  them  in  England;  Form  of  a  Bill  in  the  Year  1235;  Copy  of  a  Bill 
in  15S9 ;  Modern  Form  introduced  by  the  Goldsmiths ;  Negotiation  of  Foreign 
Bills  a  Royal  Prerogative;  Legalizing  of  Bills  of  Exchange,  9  and  10  Will.  1IL  ; 
Nature  of  Bills  of  Exchange;  Difference  between  Bank-Notes  and  Bills  of  Ex- 
change; Difference  between  Banker's  Bills  and  Mercantile  Bills  of  Exchange; 
On  Days  of  Grace ;  On  Foreign  Bills  and  Exchanges ;  Contrast  between  the 
Trade  of  England  with  America  and  that  of  other  Countries;  Blackstone's  Defi- 
nition of  a  Bill  of  Exchange  ;  Sir  John  Bayley  on  Bills  of  Exchange  ;  Promissory 
Notes  and  Checks ;  The  Laws  and  Customs  respecting  themj  The  late  Mr.  Roths- 
child ;  Mr.  Rose  and  "Rothschild's  Pillar." 

III. ...On  the  Export  of  Gold  to  Europe,  commercially  considered. 

IV....Gilbart's  Practical  Treatise  on  Banking. — SECT.  ?.  The  Irish  Ranks;  The  Hibernian 
Bank  ;  The  Banks  of  Belfast ;  The  Laws  of  Currency  in  Ireland ;  The  Exchanges 
between  the  Banks.  SECT.  8.  The  Moral  and  Religious  Duties  of  Banking  Com- 
panies. 

V New  Varieties  of  Gold  and  Silver  Coin  and  Bullion,  (continued  )  By  J.  R.  Eckfeldt 

and  William  E.  Dubois,  of  the  U.  S.  Mint.  5.  Silver  from  Lake  Superior;  6.  Ta- 
ble of  Correspondence  between  Pennyweights  and  Grains,  and  the  Decimal  Frac- 
tions of  a  Troy  Ounce;  7.  Comparison  of  American  and  Foreign  Weights  used 
for  Precious  Metals ;  8.  Bulk  and  Packing  of  Precious  Metals;  9.  Determination 
of  the  Value  of  a  Specimen  of  Gold  or  Silver  in  its  Native  Rock  ;  10.  Transac- 
tion of  Business  at  the  Mint ;  11.  Shipments  of  Gold  to  California. 

VI.... Notices  of  New  Books. 

VII. ..Editorial  Correspondence. 

VIII..  Miscellaneous.  —  The  Position  of  St.  Louis;  The  American  Institute;  The  Standing 
Armies  of  Europe;  Bankers'  Checks;  Albany  City  Bank ;  Canada  Decimal  Car- 
rency  ;  A  Dream  of  the  Past;  Bank  Taxes  ;  Maryland  Public  Debt;  The  Money 
Pressure;  Life  Insurance. 

IX Bank  Statistics.  —  Ohio. 

X Bank  Items.  — New  Banks  ;  New  Appointments. 

XI.  .  .Notes  on  the  Money  Market  for  September. 


BOSTON: 

PUBLISHED  MONTHLY,  BY  J.  SMITH  HOMANS,  111  WASHINGTON  STREET. 
60  WALL  STREET,  NEW  YORK. 


See  Second  and  Last  Pages  of  Cover. 


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